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Post by BlueCat on Sept 29, 2014 16:44:08 GMT -5
From previous quarter cc - a statement was made that soon, the books would look different.
There are a few important financial pieces in play right now:
1. Loan facility just filed - 175m to offset costs for partnership - also secured by Valencia property
2. Upfront payment - 150m - due within 10 days
3. Mann putting properties up for sale (does this include the Valencia property which is used as collateral now?)
4. Reference still to Deerfield (within 9/29 8k)
I'm assuming based on timing - these elements (at least 1-3) would not impact Q3 reporting? Generally, IRS bases off of when you have the money, not when you contract for it. Unless they've already got the $ from 1-2 in hand?
Anyone have any clarity on how these puzzle pieces come together? My assumption based on today's 8k is that its more about ramping up production lines and/or paying for insulin shipments from AMPH - and less about dealing with any remaining debt, as Deerfield is called out as a party with interest .... rather than a party the money will go to
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Post by mnholdem on Sept 29, 2014 19:05:02 GMT -5
Mannkind just issued a press release that they received the $150M upfront payment today, Sept 29, so it will affect 3Q financials.
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Post by mannmade on Sept 29, 2014 19:44:52 GMT -5
Also don't forget the bulk of R&D transfers to Sanofi books either 3rd Q or 4th Q, saving huge on the expense side
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Post by BlueCat on Sept 29, 2014 20:20:02 GMT -5
But if Q3 - that'd be a quick transfer then - as they'd have about a week to execute that before quarter end?
So - then there's also the loan. Wonder if they cut the check the day they signed the paper.
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Post by trenddiver on Sept 29, 2014 22:07:40 GMT -5
All of those events are "baked in the cake". Bears will find a way to negatively spin any positive effect these items have on EPS.
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Post by mnholdem on Sept 30, 2014 13:02:27 GMT -5
"International Financial Reporting Standards - Issues and Solutions for the Pharmaceuticals and Life Sciences Industries - Vol. III" Contains some interesting information regarding the financials related to license / royalty / partnership agreements.
www.pwc.com/en_GX/gx/pharma-life-sciences/assets/pwc-pharma-ifrs-vol-iii-pdf.pdf
This must be a published work, because I am able to read it, but not copy or print.
Some of the answers of how various costs (past, present & future) are paid by the partner are found in this publication. It's detailed, but cautions the reader that partnerships can be complicated and financials equally subjective.
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Post by BlueCat on Sept 30, 2014 14:01:30 GMT -5
Holdem- Good find! Seems that this agreement is somewhere like both a license (page 15) and sales/marketing agreement (page 25). Interesting question on the fair vs. not fair value. My guess is that at 35% its considered fair value, and the upfront payment is more of a milestone payment like a licensing agreement ...
Based on this thread and recent events so far:
1. 150M will be on Q3 books
2. 175M loan - still don't know - could be Q3 or Q4
3. Property sales - Assuming Q4 as we haven't heard of anything actually selling yet?
4. Deerfield- whatever its been, it would continue to be on the books for Q3
I'm wondering on this because I think it will impact how this next report will play out. If the current Q3 report is stronger in financials, AND, there are positive forward-looking statements made for Q4-Q1 timeframe - mid November could be positive report and cc at least. If that can turn the SP, who knows. Other things haven't, and I'm not convinced that even sales will move the SP. Crazy as that sounds. But nothing that positive otherwise has.
However - if Q3 is still business-as-usual, it may dampen (or at least give shorts something to point at) to keep price low, or lower, for another quarter ...
Hence, taking inventory on the potential and engaging in pure speculation here. Trying to keep my, as they say, hopium bong, filled ....
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Post by dreamboatcruise on Sept 30, 2014 15:25:30 GMT -5
The loan is a line of credit. MNKD might never use it. It is available if they wish to, but only to the extent they are covering their portion of joint expenses.
That is my understanding.
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Post by mnholdem on Sept 30, 2014 16:27:09 GMT -5
If I remember correctly, the 8-k just filed on the loan facility states that loan payment is made by deducting it directly from each profit sharing payment. That could mean no net earnings for a few quarters. I think there have been a few investment analysts how have indicated the same in their investment reports.
This could dampen some enthusiasm, but sentiment and optimism also seems to be what brings the buyers, and a few choice announcements could light the fuse for a reversal. Some examples would be Sanofi announcing an equity interest in MannKind, insider buying, and announcement of EU launch date. Milestone payments and additional Technosphere drug partnerships are also a possibility. Then there are the changes in the financial statements that Matt Pfeffer said would be very different from what we've seen in the past. I still haven't ruled out a spin off of the Technosphere, which would pave the way for an eventual complete buyout of Afrezza patents and production.
It will be fun to watch how the pps movement works out over the next few months.
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Post by Deleted on Sept 30, 2014 17:10:43 GMT -5
It will be fun to watch how the pps movement works out over the next few months. I dont find it fun, lol. Seriously, though, it just feels like these 74 million shorts arent going away, even when sales happen. Feels like its David vs. Goliath, and any gain will just be doubled down by short sellers. Maybe Im just super jaded after watching the $6 line fall today after repeated battering. |
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Post by dreamboatcruise on Sept 30, 2014 18:25:13 GMT -5
If I remember correctly, the 8-k just filed on the loan facility states that loan payment is made by deducting it directly from each profit sharing payment. That could mean no net earnings for a few quarters. I think there have been a few investment analysts how have indicated the same in their investment reports. This could dampen some enthusiasm, but sentiment and optimism also seems to be what brings the buyers, and a few choice announcements could light the fuse for a reversal. Some examples would be Sanofi announcing an equity interest in MannKind, insider buying, and announcement of EU launch date. Milestone payments and additional Technosphere drug partnerships are also a possibility. Then there are the changes in the financial statements that Matt Pfeffer said would be very different from what we've seen in the past. I still haven't ruled out a spin off of the Technosphere, which would pave the way for an eventual complete buyout of Afrezza patents and production. It will be fun to watch how the pps movement works out over the next few months. Borrowing against the line of credit and repayments of those amounts does not effect the P&L. The expense hits the bottom line when it occurs (35% of total expenses for MNKD) regardless of whether MNKD borrows to cover their portion. Setting aside the loan instrument which might never get used, if MNKD were to spend $30M in a quarter on expenses that the agreement says are attributable to the Joint Venture and SNY were to spend $70M then MNKD would owe SNY $5M. However, if MNKD spent $40M and SNY spent $60M then MNKD would get $5M that quarter. I'm guessing that MNKD can borrow $35M against the credit line in either of those cases. The $35M expense would hit their bottom line that quarter, not when they pay back the loan. If the loan is not paid back until there are net profits... when revenue exceeds the combined expenses of MNKD and SNY for JV costs... then even if MNKD share of profit is kept by SNY as loan repayment, it would still appear as profit on MNKD's P&L. caveat... I've run businesses, I don't have an accounting degree. |
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Post by BlueCat on Sept 30, 2014 19:50:31 GMT -5
If I remember correctly, the 8-k just filed on the loan facility states that loan payment is made by deducting it directly from each profit sharing payment. That could mean no net earnings for a few quarters. I think there have been a few investment analysts how have indicated the same in their investment reports. This could dampen some enthusiasm, but sentiment and optimism also seems to be what brings the buyers, and a few choice announcements could light the fuse for a reversal. Some examples would be Sanofi announcing an equity interest in MannKind, insider buying, and announcement of EU launch date. Milestone payments and additional Technosphere drug partnerships are also a possibility. Then there are the changes in the financial statements that Matt Pfeffer said would be very different from what we've seen in the past. I still haven't ruled out a spin off of the Technosphere, which would pave the way for an eventual complete buyout of Afrezza patents and production. It will be fun to watch how the pps movement works out over the next few months. Borrowing against the line of credit and repayments of those amounts does not effect the P&L. The expense hits the bottom line when it occurs (35% of total expenses for MNKD) regardless of whether MNKD borrows to cover their portion. Setting aside the loan instrument which might never get used, if MNKD were to spend $30M in a quarter on expenses that the agreement says are attributable to the Joint Venture and SNY were to spend $70M then MNKD would owe SNY $5M. However, if MNKD spent $40M and SNY spent $60M then MNKD would get $5M that quarter. I'm guessing that MNKD can borrow $35M against the credit line in either of those cases. The $35M expense would hit their bottom line that quarter, not when they pay back the loan. If the loan is not paid back until there are net profits... when revenue exceeds the combined expenses of MNKD and SNY for JV costs... then even if MNKD share of profit is kept by SNY as loan repayment, it would still appear as profit on MNKD's P&L. caveat... I've run businesses, I don't have an accounting degree. Ok - so why would MNKD owe SNY $5M in a quarter based on the expense spread - or the other way around? I guess I missed the part about specifying percentages with expenses too? I thought expenses pull out (for what they are) and then its just the profit that gets split 65/35. And under this - if MNKD did have to pull on that loan, wouldn't the 8.5% interest count as an expense within the JV - and when it was paid? Basically, it just increases their costs to deliver. Also, if they have executed the loan now, my assumption is they are planning on using it. E.g. to buy insulin or add production line. Otherwise, why not just execute when needed? Separately from Holdem - something about R&D costs transferring in Q3 and/or Q4. I would think that could not happen until the agreement was finalized - per HSR approval. Seems that would start in Q4? |
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Post by mnholdem on Sept 30, 2014 20:01:45 GMT -5
One also has to conclude that COGS are excluded from the 35/65 profit-after-expenses equation. MannKind is selling Afrezza at cost, so if they had to absorb 35% of their own COGS they'd be selling at a loss. This indicates that 35% of the costs Mannkind must cover are expenses from sales & marketing, plus further expenses related to development & testing.
Also, the license agreement summary in the August 8-k stated that a mutually-agreed upon budget must be followed by both parties, the budget would be determined after finalizing the agreement. Mannkind will know the maximum amount of expenses they are to be held accountable for on a monthly & quarterly basis. Both parties are responsible for meeting their production & marketing milestones on time and within budget.
In other words, no surprises. Careful planning will ensure a controlled, and successful, launch of Afrezza.
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Post by dreamboatcruise on Oct 1, 2014 10:55:19 GMT -5
My understanding is that during the expense more than revenue period they adjust with cash transfers so that each ends up with their percent of net expense. During the revenue more than expense period (hopefully occurs quickly and lasts for a very long time), they adjust with cash transfers so that each ends up with their percent of net profit. Yes I believe that COGS from MNKD are transferred to the JV and MNKD is effectively responsible for 35% of it.
I believe the way to think about this is that what they are replicating from a P&L perspective is the setting up of an independent JV company that would do the production, future research, clinical trials, sales and marketing associated with Afrezza and that MNKD is responsible for 35% of startup funding while it is losing money and gets 35% of profit once it is profitable. The upfront fees would be something not part of the JV... they would go directly to MNKD. Also, the loan is a vehicle available to MNKD that at their option they can use to pay their 35% of expenses of funding the JV. Of course the assets really don't get pulled into a separate JV, so payments back and forth are used to simply implement the accounting equivalent of a true JV.
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Post by mnholdem on Oct 1, 2014 15:27:24 GMT -5
Then why a separate supply agreement between Sanofi and MannKind, that is segregated from the 35/65 profit sharing arrangement in the license agreement?
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