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Post by hammer on Aug 16, 2014 10:58:47 GMT -5
MNKD Deals for Dummies Version:
Let me preface my comments in that I am not an accountant. Therefore, I will do my best to stay away from acronyms like COGS, NOL, etc. and all the proprietary verbiage associated with the professional acumen. Instead I will take a stab in plain terms to explain the current deal as we know it, or as I interpret it from a layman’s view.
Let’s go:
Mannkind and Sanofi have entered into 2 partnership agreements. The first agreement is a collaboration and license agreement which basically states from here on out that Sanofi is solely responsible for the regulatory, marketing and sales of Afrezza worldwide, just about everything. Implicitly that includes the United States as well. Under this agreement, SNY and MNKD will share all profits and losses at 65/35 respectively. Any future build out of capacity or new manufacturing facilities to meet demand are also governed by this agreement.
The second agreement is a supply agreement. In this agreement the sole responsibility of MNKD is the production and supply of the product, Afrezza. SNY will purchase or basically reimburse MNKD at cost. Inherent in the cost structure of Afrezza is any current supply or agreement for the supply of insulin. As stated in the conference call there is only one source certified for sale in the US and that is through AMPH. MNKD and SNY are currently engaged in the certification of both bulk insulin supply and SNY supplied insulin. When the SNY supply is certified for sale, SNY will supply the bulk raw insulin at cost for production.
Also stated in the conference call was a brief insight into the cost structure of the product. The cost structure reimbursed will also include some prior items, in fact the bulk of cost associated with the production facilities at Danbury. Therefore over time MNKD will be reimbursed for 65% of all prior Afrezza related activities within the cost structure of Afrezza to SNY. It is still unclear what this cost will be on a per unit basis.
Now let’s look at the other aspects of the deal. The upfront payment of 150mil is just that and nothing more than “thanks” for doing business. The credit line of 175mil may be used if needed to offset early losses prior to commercialization or early into the process. Keep in mind this deal is settled up on a quarterly basis and regulatory, R&D, marketing expenses will ramp up early on SNY side. It appears that SNY expects early cost to be in the 500mil range if MNKD portion at 35% is 175mil. As Matt stated this line of credit may be tapped and paid off without penalty at the discretion of MNKD to offset initial losses.
Certain milestone payments will be paid out to MNKD, attached to regulatory and sales figures. In aggregate this equates to 775 million. That’s an interesting number. A good chunk of this amount should be achieved rather early since 75 million is associated with manufacturing development. I believe this is in the bag since it is my contention that the “processes” Al eluded to are centered around manufacturing development. Another 50 million should also be achieved within a relatively short time since they are linked to regulatory affairs, specifically Japan and EU. The only sales figure we know of is the 250 million sales threshold. This should be achieved easily in the first year sales. Since we do not know what the figure is we can only conclude the something more than 150mil in payments should be made available to MNKD within 1 years time.
Remember, I said the 775 Million is a very interesting number. What makes it more interesting is Matt’s statement that MNKD would be made whole. This relates a bit to the Seeking Alpha article by Eisenmann. It is my contention that MNKD will be made whole. 775 million is roughly 35% of the accumulated loss of Mannkindcorp and the remaining 65% will be recouped by reimbursement from SNY at cost of product. In essence MNKD has received 100% of the total cost of Afrezza. On top of this MNKD will receive 35% of the proceeds of sale of Afrezza. As shareholders we have lost very little going into a potential sale of MNKD but have gained a partner who can accomplish what we could not. We have a drastically changing financial condition and potentially working towards a product which will be cheaper and easier to sell than any competitive injectable.
In our favor we have lost no autonomy in technosphere, ownership of Afrezza, or pending technophere developments, delivery systems. Additionally we retain 65% of our accumulated loss to offset future profits, and this is substantial since that equates to roughly 1.5 bill. Afrezza and possibly an inhaled GLP-1 will be developed in conjunction with a supurb partner, SNY, who then continue to make shareholder value or ultimately purchase the product outright.
It has been my opinion that the whole deal was structured to streamline the purchase of Afrezza making the likely transition smooth as possible. Good Luck to all.
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Post by gamblerjag on Aug 16, 2014 11:18:53 GMT -5
Damn Hammer.............. nice read.............
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Post by gamblerjag on Aug 16, 2014 11:39:56 GMT -5
so let's say MDT is involved and news is released lets say in September. What does that do to the stock.. bring it back to SNY levels pre market $11 bucks.. or do we pass that and this time stay in a tighter range?
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Post by daduke38 on Aug 16, 2014 11:44:33 GMT -5
MNKD Deals for Dummies Version:
Let me preface my comments in that I am not an accountant. Therefore, I will do my best to stay away from acronyms like COGS, NOL, etc. and all the proprietary verbiage associated with the professional acumen. Instead I will take a stab in plain terms to explain the current deal as we know it, or as I interpret it from a layman’s view.
Let’s go:
Mannkind and Sanofi have entered into 2 partnership agreements. The first agreement is a collaboration and license agreement which basically states from here on out that Sanofi is solely responsible for the regulatory, marketing and sales of Afrezza worldwide, just about everything. Implicitly that includes the United States as well. Under this agreement, SNY and MNKD will share all profits and losses at 65/35 respectively. Any future build out of capacity or new manufacturing facilities to meet demand are also governed by this agreement.
The second agreement is a supply agreement. In this agreement the sole responsibility of MNKD is the production and supply of the product, Afrezza. SNY will purchase or basically reimburse MNKD at cost. Inherent in the cost structure of Afrezza is any current supply or agreement for the supply of insulin. As stated in the conference call there is only one source certified for sale in the US and that is through AMPH. MNKD and SNY are currently engaged in the certification of both bulk insulin supply and SNY supplied insulin. When the SNY supply is certified for sale, SNY will supply the bulk raw insulin at cost for production.
Also stated in the conference call was a brief insight into the cost structure of the product. The cost structure reimbursed will also include some prior items, in fact the bulk of cost associated with the production facilities at Danbury. Therefore over time MNKD will be reimbursed for 65% of all prior Afrezza related activities within the cost structure of Afrezza to SNY. It is still unclear what this cost will be on a per unit basis.
Now let’s look at the other aspects of the deal. The upfront payment of 150mil is just that and nothing more than “thanks” for doing business. The credit line of 175mil may be used if needed to offset early losses prior to commercialization or early into the process. Keep in mind this deal is settled up on a quarterly basis and regulatory, R&D, marketing expenses will ramp up early on SNY side. It appears that SNY expects early cost to be in the 500mil range if MNKD portion at 35% is 175mil. As Matt stated this line of credit may be tapped and paid off without penalty at the discretion of MNKD to offset initial losses.
Certain milestone payments will be paid out to MNKD, attached to regulatory and sales figures. In aggregate this equates to 775 million. That’s an interesting number. A good chunk of this amount should be achieved rather early since 75 million is associated with manufacturing development. I believe this is in the bag since it is my contention that the “processes” Al eluded to are centered around manufacturing development. Another 50 million should also be achieved within a relatively short time since they are linked to regulatory affairs, specifically Japan and EU. The only sales figure we know of is the 250 million sales threshold. This should be achieved easily in the first year sales. Since we do not know what the figure is we can only conclude the something more than 150mil in payments should be made available to MNKD within 1 years time.
Remember, I said the 775 Million is a very interesting number. What makes it more interesting is Matt’s statement that MNKD would be made whole. This relates a bit to the Seeking Alpha article by Eisenmann. It is my contention that MNKD will be made whole. 775 million is roughly 35% of the accumulated loss of Mannkindcorp and the remaining 65% will be recouped by reimbursement from SNY at cost of product. In essence MNKD has received 100% of the total cost of Afrezza. On top of this MNKD will receive 35% of the proceeds of sale of Afrezza. As shareholders we have lost very little going into a potential sale of MNKD but have gained a partner who can accomplish what we could not. We have a drastically changing financial condition and potentially working towards a product which will be cheaper and easier to sell than any competitive injectable.
In our favor we have lost no autonomy in technosphere, ownership of Afrezza, or pending technophere developments, delivery systems. Additionally we retain 65% of our accumulated loss to offset future profits, and this is substantial since that equates to roughly 1.5 bill. Afrezza and possibly an inhaled GLP-1 will be developed in conjunction with a supurb partner, SNY, who then continue to make shareholder value or ultimately purchase the product outright.
It has been my opinion that the whole deal was structured to streamline the purchase of Afrezza making the likely transition smooth as possible. Good Luck to all.
Great post! On "THE" other board people keep refering to the loss on retained earning as a debt. It drives my crazy! Moving forward, it actually becomes a positive. No taxes until that is back to $0.00. I still think there is more to this deal than has been made public yet. In fact, I know there is based on Al's comment and Matt's reponse. The more I look at this deal, the more I like it, although I still think the upfront shoud have been higher. But a mute point and in the long run it's not a big deal. It was a great post explaining it simply (THANK YOU  ! I really do agree strongly with your last statement! Just a theory, but I think if MDT had not been tied up, it may have been a buyout from the get go. I really see them as part of this equation when it's all said and done. |
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Post by mnkdd on Aug 16, 2014 11:56:31 GMT -5
MNKD Deals for Dummies Version: It has been my opinion that the whole deal was structured to streamline the purchase of Afrezza making the likely transition smooth as possible. Good Luck to all.
Really interesting read, thanks for writing it up! I just had one question-- why is it a smoother transition to do these two complex deals (licensing Afrezza, supply agreement) if the end game was just to purchase Afrezza outright? In other words, why didn't Sanofi just buy Afrezza in one deal, instead of jumping through multiple hoops? Thanks! |
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Post by hammer on Aug 16, 2014 12:00:30 GMT -5
so let's say MDT is involved and news is released lets say in September. What does that do to the stock.. bring it back to SNY levels pre market $11 bucks.. or do we pass that and this time stay in a tighter range? Gambler, Acknowledging that another deal is speculative, I must admit I view MNKD as the glue which holds the MDT/SNY alliance together. MDT is in essence more of a device company so I see MDT most closely interested in the MNKD technologies portion of MNKD. If MDT wanted to make an investment in the whole DPI industry I feel you could not have found a better one than with MNKD technologies and the Blu-Hale technology.
WE certainly have heard about SNY and Afrezza, and I do question just how the relationship being a drug-device combination is related. Its speculative, but I could see MDT taking a stake in the device and SNY in the drug. With an ownership stake the PPS would rapidly reflect the value of the delivery system and Technosphere. Not only in Afrezza but other drug platforms. SNY and MDT crossover in the testing market for diabetes, but since I believe that Afrezza will not only change the way we treat diabetes but monitor it as well their are a lot of synergies in this collaboration, especially if alternative testing abilities surface.
I once quibbled that continuous glucose monitoring, Afrezza, Basal and google glass or an Iphone are all you may need to achieve an artificial pancreas. The relationship between MDT and Al Mann is not one to be discounted, especially since they are in collaboration with SNY.
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Post by gamblerjag on Aug 16, 2014 12:03:25 GMT -5
Would also like to add there was a reason Al didn't partner before FDA approval. He would have gotten a lot less than 35%. So to think he doesn't have something else brewing that we are yet to hear about would be naïve. Whether it's MDT or a planned buyout by SNY in the next year.. you can bet that he didn't wait after FDA approval before partnering without having other events up his sleeve. |
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Post by hammer on Aug 16, 2014 12:11:02 GMT -5
MNKD Deals for Dummies Version: It has been my opinion that the whole deal was structured to streamline the purchase of Afrezza making the likely transition smooth as possible. Good Luck to all.
Really interesting read, thanks for writing it up! I just had one question-- why is it a smoother transition to do these two complex deals (licensing Afrezza, supply agreement) if the end game was just to purchase Afrezza outright? In other words, why didn't Sanofi just buy Afrezza in one deal, instead of jumping through multiple hoops? Thanks! Im a firm believer in the utility and science of Afrezza. I have reasonable expectations of market penetration especially in the type 2 diabetes market which would make Afrezza a multi billion dollar revenue drug in a pandemic like increasing diabetic market. Future expectations of revenues combined with 20+ multiples place a very, very large buyout cost if the product is allowed to mature. The way the deal is structured, with MNKD becoming whole early on at the expense of SNY could justify a more reasonable buyout figure that is manageable by SNY or SNY/MDT. JMHO |
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Post by mrhaigs on Aug 16, 2014 12:14:01 GMT -5
If sales are what we think, I too believe that SNY will purchase mnkd within a couple of years. This will all depend on how post approval studies go as well. I hope to see Sanofi purchasing mnkd shares on the open market similarity to how they do with regeneron, another company they have a similar deal with.
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Post by mrhaigs on Aug 16, 2014 12:14:47 GMT -5
so let's say MDT is involved and news is released lets say in September. What does that do to the stock.. bring it back to SNY levels pre market $11 bucks.. or do we pass that and this time stay in a tighter range? Honestly man, who knows. The market has a mind of its own. anyone who tells you otherwise is just guessing |
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Post by mnkdd on Aug 16, 2014 12:19:20 GMT -5
Really interesting read, thanks for writing it up! I just had one question-- why is it a smoother transition to do these two complex deals (licensing Afrezza, supply agreement) if the end game was just to purchase Afrezza outright? In other words, why didn't Sanofi just buy Afrezza in one deal, instead of jumping through multiple hoops? Thanks! Im a firm believer in the utility and science of Afrezza. I have reasonable expectations of market penetration especially in the type 2 diabetes market which would make Afrezza a multi billion dollar revenue drug in a pandemic like increasing diabetic market. Future expectations of revenues combined with 20+ multiples place a very, very large buyout cost if the product is allowed to mature. The way the deal is structured, with MNKD becoming whole early on at the expense of SNY could justify a more reasonable buyout figure that is manageable by SNY or SNY/MDT. JMHO I think if Sanofi really wanted to buy Afrezza, they would have bought Afrezza. MNKD's is only going to get more bargaining leverage from here on out (as sales surpass expectations!). I don't see any upside to Sanofi for them to wait around... unless of course, they were worried that Afrezza would bomb and they wanted to hedge and "wait and see" before going all in. |
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Post by daduke38 on Aug 16, 2014 12:20:08 GMT -5
To throw something else into the mix..... Why did SNY issue 500M shares that are still just sitting there?  |
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Post by mnkdd on Aug 16, 2014 12:35:01 GMT -5
To throw something else into the mix..... Why did SNY issue 500M shares that are still just sitting there? Yes, the plot definitely thickens. |
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Post by dreamboatcruise on Aug 16, 2014 13:15:57 GMT -5
...
Also stated in the conference call was a brief insight into the cost structure of the product. The cost structure reimbursed will also include some prior items, in fact the bulk of cost associated with the production facilities at Danbury. Therefore over time MNKD will be reimbursed for 65% of all prior Afrezza related activities within the cost structure of Afrezza to SNY
...
What makes it more interesting is Matt’s statement that MNKD would be made whole. You seem to contradict yourself in the first section I've quoted. Yes, costs associated with the production facilities at Danbury may indeed be included in costs of goods passed on to the joint venture. Perhaps even some costs that were previously considered expensed. However, Danbury costs leave out a bulk of Mannkind's R&D expenses over the years. Regarding the second, unless you care to point out where, I listened to both calls and do not recall Matt ever having made a statement regarding being "made whole". He stated early in setting the stage for announcing the details that the deal "recognizes" the value that both parties had built up and are bringing to the partnership. "Recognizing" is not the same as "reimbursing". As you point out Sanofi has agreed to close to a billion dollars in payments beyond the profit split. A billion dollars beyond the profit split is certainly recognizing something of value. As I've stated before I think that statement by Matt was really to tell Mannkind shareholders that despite the deal having profits split to advantage of Sanofi, this is in "recognition" of the fact that Sanofi is a powerhouse in diabetes space and is bringing that marketing/sales muscle to Afrezza... perhaps with 35% of profit with Sanofi being better than 50% split with a weaker partner. Why am I spending so much effort trying to disabuse people of this wishful thinking of "hidden" payments? Because the details are to become known in less than 3 months and I don't want another sell off when a bunch of shareholders wake up to reality. If you'd like to make a contrary case, I will certainly give it close consideration. However... please listen to the conference call and transcribe the actual statements from Mannkind. Right now you seem to be engaging in the game of telephone where statements get passed around and rephrased until they mean something entirely different than what was originally said. |
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Post by dreamboatcruise on Aug 16, 2014 13:28:46 GMT -5
To throw something else into the mix..... Why did SNY issue 500M shares that are still just sitting there? Yes, the plot definitely thickens. Indeed. I suspect the speculative plot to split into alternate timelines soon, but undoubtedly Al will protect us from the smoke monster. Sorry... my serious point is that you seem to at least at some level recognize this is simply a story that is being constructed. I find the reality that we know every bit as exciting. Mannkind has partnered with a powerhouse in the diabetes care space and has a chance of changing how the disease is treated with huge benefit to millions around the world. In doing so Mannkind will rake in billions while commercializing many other Technosphere fueled breakthroughs. |
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! I really do agree strongly with your last statement! Just a theory, but I think if MDT had not been tied up, it may have been a buyout from the get go. I really see them as part of this equation when it's all said and done.
