Post by otherottawaguy on Sept 5, 2013 13:34:40 GMT -5
I posted this at mannkind.freeforums.net, but as I read both though I might cross post it here in ints enterity.
______________________________________________________________
PART 1:
I have been asked to provide additional commentary on my post from yahoo as found below, I will attempt to explain the details in a followup posting this evening.
Assuming FDA Approval and the following:
Dansbury Plant Capacity: 12 lines or 2M patients annually
Current Capacity: 1 line (166k) + adding 3 lines (499k) = capacity now 4 lines (667k) (no further capacity added until after 1 year of sales)
Annual Cost to Patient: $2000
Contribution Margin (CM) after Partner: $500
Share Count: 600
Time Discount: 10%
Time to End of 1 full Year of Sales: 2 years (from today)
Calc = ((Capacity X CM) / Share Count) X Discount X P/E
= ((667000 X 500) / 600 000 000) X ((1+ 0.10)^2)^(-1) X P/E
= (0.555) X (1/1.21) X P/E
= $0.5558 X .8264 X P/E
= $0.459 X P/ETodays
Price assuming FDA approval, and partner:
P/E 18 = $ 8.26
P/E 25 = $11.94
P/E 30 = $14.33
_______________________________________________________
PART 2:
Sorry for the delay on this one...
Breaking down each variable in line:
A1.
Dansbury Plant Capacity: 12 lines or 2M patients annually
-This was an excerpt from a call and I have been using this as the the ceiling for my plant max output. Mr Mann has also stated that Danbury location has the ability to serve two million patients when fully operational. If I am not mistaken, I believe Mr Mann has also suggested that the physical footprint of the Danbury could be doubled, not sure if this means to a possible 24 lines (4M patients) but have not made this as part of the calculation.
A2.
Current Capacity: 1 line (166k) + adding 3 lines (499k) = capacity now 4 lines (667k) (no further capacity added until after 1 year of sales)
-Using the numbers as provided ref A1 we can work backwards to get the output of an individual line as in 2,000,0000M / 12 or an output of 166 667 per line. The quote that I have above incorrectly assume expansion to 4 lines.
NOTE: I have seen elsewhere that a line has output capacity of 150 000 patients per year but am not sure of the source, so remain with the numbers as provided in A1 for my calculations.
A3.
Annual Cost to Patient: $2000
-different numbers have been proffered about annual insulin only costs ranging from 1500 to 2200 and to as much as 6000 when all costs are factored in. It has been also suggested that costs to insurance will be greatly reduced via the delivery mechanism (reduce test strips, needles, pens,...). So I have gone with the middle of the road at 2000 using the following calculation: ((1500 + 2200)/2)* 1.05 (ie within 5%)= $1942.
A4.
Contribution Margin (CM) after Partner: $500
-This one is pretty much a guess. Assuming a 2k per year cost and a 50% Cost of Good Sold (COGS), which includes both variable and fixed costs of production,. This leaves us at $1000 to split with us an the marketing partner. I am assuming a 50/50 split on this arriving at 25% as the contribution margin or approximately $500 per patient.
NOTE: Recently read on one of the boards that this may be somewhat conservative as some licensing agreements for pharma products that amount to disruptive technologies might be closer to 35% to the patent holders.
A5.
Count: 600
-I have seen many different numbers on this one ranging from the basic share count outstanding today of 300M to my highest number of 600M. BobW had a very detailed analysis of shares outstanding of 412M but this was prior to the 50M ATM and the Deerfield agreements, I also believe that there has been additional pot of RSUs granted by the board. We should also factor in that Mr Mann's remaining LOC will most likely be converted as well at
So using BobW's starting number of 412 + Deerfields 24M (6M @ 6.80 *4) + ATM 7.3M (50M/6.80) + RSU 50M (SEC S-8 May 2013) + LOC Conversion 17.5M (119M/6.8)= 511M
I have been happy in the past to use 550M (which will allow for additional funnies aka dilution) not sure why I bumped it up to 600M but think that I might have been adding in the above additions but starting at 500M.
A6.
Time Discount: 10%
-Graciously provided by the Deerfield financing deal at 9.75% and round up for simplicity.
A7.
Time to End of 1 full Year of Sales: 2 years (from today)
-"from today" was back in May 2013 and using the following calendar:
Resubmission Oct 2013 + 6 month Review = FDA decision in Mar 2014
Add 2 months for ramp up and distribution sales should being in June 20.
Full year of sales on three lines will complete in May 2015
NOTE: assume that installation of new lines and inspections have been completed at FDA decision date
A8. (new item)
- In reading through the many electronic boards on MNKD and EXEL I have come across two stats of interest. First one is that 80% of drugs making it to Phase 3 are granted FDA approval. The second more interesting tidbit is that 80% of those doing a third submission to the FDA are finally accepted. Apologies are extended to the statisticians in the crowd but the number I am using as a success probability is going to be in excess of 80% as were not testing for the drug but the device, end points look to have been met and tests were developed in conjunction with FDA consultation.
I have modified thee calculation with the numbers as explained in this response:
Calc = ((Capacity X Contribution Margin) / Share Count) X Discount X P/E X Probability of Success (new)
= ((500000 X 500) / 550 000 000) X ((1+ 0.9.76)^2)^(-1) X P/E X PoS
= 25000000 / 550M * 1/1.204 X PoS
= 0.4545 X .8300 X PoS X P/E
= $0.3776 X 95% X P/E
= $0.3584 X P/E
Price assuming FDA approval, and partner:
P/E 18 = $ 6.45
P/E 25 = $ 8.96
P/E 30 = $10.75
P/E 50 = $17.92
_______________________________________________________
PART 3:
Addtional information to consider:
Quick RoT(rule of thumb) for calculating share price 12 - 16pps per million customers (higher PR in first years)
Market Penetration:
Expected growth rate in US (extrapolating to Canada): 100 to 200% increase by 205 or 1.7% annually
And a quote from Diabetes Canada
An estimated 285 million people worldwide are affected by diabetes. With a further 7 million people developing diabetes each year, this number is expected to hit 438 million by 2030.
US & CAN & Mexico: T1(10%) & T2(90%) = 26M + 3M + 11M
NA = 40M X (1.017)^years
EU = 52M
Rest of World (ROW) = 285 - 40 - 52 = 193M
So looking only at NA and EU markets we have a possible 92 million patiennt poulation.
For the sake of this calculation we will remove accomodation for prediabetic population which could increase these numbers by 50%.
Danbury by end of year of the first year of production will have a min of 3 lines operating, EU submission may have been blessed so Euro population will not be used for calculation of popential market.Sam may also apply to Can and Mex populations.
Assume Cost of new line is $10M installed, lead time 6 months
Year 1(US onlyapproved):
Danbury Output: 500K
Potential Market: 26M
Market Share: 500 000/26 000 000 = 1.9%
Sales: 500K X $2000 = $1B
Insulin: 10B - 1 B = 9B (prepurchased insulin remaining)
Profit: $250M
Tax effect: Carry forward losses reduced from 2B to 1.75 B
Dividend: 1% X $25pps X 550M = $137M
Reinvest in complete buildout = $90M (9 addtional lines at cost of $10M each)
Retained Earnings: $23M (expand Danbury location?
?)
Market Cap: 13.75B
Year 2(NA + Euro approved):
Danbury Output: 2M
Potential Market: 92M
Market Share: 2M/92M = 2.17%
Sales: 2M X $2000 = $4B
Insulin: $9B - 4 B = $5B (prepurchased insulin remaining)
Profit: $1B
Tax effect: Carry forward losses reduced from 1.75B to taxable income of 250M at 30% = 75M
Dividend: 1% X $50pps X 550M = $225M
Reinvest in duplicate buildout: $170M (50M doubling of foot print + 12 additional lines at cost of $10M each)
Retained Earnings: $1B - 75M - 225M - 170M = $530M (European Plant?)
Market Cap: 27.5B
Year 3(World Market approvals and European plant facilities in place):
Danbury & Euro plants Output: 8M
Potential Market: 280M
Market Share:8M/280M = 2.85%
Sales: 8M X $2000 = $16B
Insulin: $5B - 16 B = all gone
Profit: $4B
Tax effect: $4B at 30% = 1.2B
Dividend: 2% X 96(8M X 12)pps X 550M = $1B
Reinvest in new facility: $340M (100M building + 24 additional lines at cost of $10M each)
Retained Earnings: $4B - 1.2B - $1B - 340M = $1.4B (ALL Debt retired, Share buyback, Subsidized Product for 3rd world?)
Market Cap: $52.2
Year 4(US and EU reach max penetration + additional plant):
Danbury & Euro plants Output: 12M
Potential Market: 280M
Market Share:12M/280M = 4.2%
Sales: 12M X $2000 = $24B
Insulin: all gone
Profit: $6B
Tax effect: $6B at 30% = 1.8B
Dividend: 2% X 144(12M X 12)pps X 550M = $1.5B
Reinvest in new facilities: $340M *3 = $1B
Retained Earnings: $6B - 1.8B - $1.5B - 1B = $1.7B (Share buyback, Additional Production)
Market Cap: $79.2B
Year 5(3 additional plants, max market penetration will be reached):
Danbury & Euro plants Output: 24M
Potential Market: 280M
Market Share:24M/280M = 8.6% (NA 8M(20% Market Share), EU 10M (20%), ROW 6M (1.5%))
Sales: 24M X $2000 = $48B
Insulin: all gone
Profit: $12B
Tax effect: $12B at 30% = 3.6B
Dividend: 2% X 288(24M X 12)pps X 550M = $3.2B
Reinvest in new facilities: max penetration reached.
Retained Earnings: $12B - 3.6B - $3.2B = $5.2B (Share buyback)
Market Cap: $152B
Avail for Buyback | Share Price | Share Count after | Dividend 2%
Year 6 5000000000 288 532638888 5.76
Year 7 5000000000 297 51582579 5.95
Year 8 5000000000 307 499543412 6.14
Year 9 5000000000 317 483774997 6.34
Year 10 5000000000 327 468504321 6.55
This is when it gets really interesting if you want to take a streach:
During all the buybacks Mann group did not sell, resulting in them gaining controlling interest.
Mann foundation then makes an offer to take it private at a 30% premium to current price for $400/share via debt/private equity offering.
Mann Foundation expands production with sight to providing lowcost diabetes treatment to the worlds populations that can least afford.
Mr Alfred Mann's legacy is complete.
Enjoy,
OOG
______________________________________________________________
PART 1:
I have been asked to provide additional commentary on my post from yahoo as found below, I will attempt to explain the details in a followup posting this evening.
Assuming FDA Approval and the following:
Dansbury Plant Capacity: 12 lines or 2M patients annually
Current Capacity: 1 line (166k) + adding 3 lines (499k) = capacity now 4 lines (667k) (no further capacity added until after 1 year of sales)
Annual Cost to Patient: $2000
Contribution Margin (CM) after Partner: $500
Share Count: 600
Time Discount: 10%
Time to End of 1 full Year of Sales: 2 years (from today)
Calc = ((Capacity X CM) / Share Count) X Discount X P/E
= ((667000 X 500) / 600 000 000) X ((1+ 0.10)^2)^(-1) X P/E
= (0.555) X (1/1.21) X P/E
= $0.5558 X .8264 X P/E
= $0.459 X P/ETodays
Price assuming FDA approval, and partner:
P/E 18 = $ 8.26
P/E 25 = $11.94
P/E 30 = $14.33
_______________________________________________________
PART 2:
Sorry for the delay on this one...
Breaking down each variable in line:
A1.
Dansbury Plant Capacity: 12 lines or 2M patients annually
-This was an excerpt from a call and I have been using this as the the ceiling for my plant max output. Mr Mann has also stated that Danbury location has the ability to serve two million patients when fully operational. If I am not mistaken, I believe Mr Mann has also suggested that the physical footprint of the Danbury could be doubled, not sure if this means to a possible 24 lines (4M patients) but have not made this as part of the calculation.
A2.
Current Capacity: 1 line (166k) + adding 3 lines (499k) = capacity now 4 lines (667k) (no further capacity added until after 1 year of sales)
-Using the numbers as provided ref A1 we can work backwards to get the output of an individual line as in 2,000,0000M / 12 or an output of 166 667 per line. The quote that I have above incorrectly assume expansion to 4 lines.
NOTE: I have seen elsewhere that a line has output capacity of 150 000 patients per year but am not sure of the source, so remain with the numbers as provided in A1 for my calculations.
A3.
Annual Cost to Patient: $2000
-different numbers have been proffered about annual insulin only costs ranging from 1500 to 2200 and to as much as 6000 when all costs are factored in. It has been also suggested that costs to insurance will be greatly reduced via the delivery mechanism (reduce test strips, needles, pens,...). So I have gone with the middle of the road at 2000 using the following calculation: ((1500 + 2200)/2)* 1.05 (ie within 5%)= $1942.
A4.
Contribution Margin (CM) after Partner: $500
-This one is pretty much a guess. Assuming a 2k per year cost and a 50% Cost of Good Sold (COGS), which includes both variable and fixed costs of production,. This leaves us at $1000 to split with us an the marketing partner. I am assuming a 50/50 split on this arriving at 25% as the contribution margin or approximately $500 per patient.
NOTE: Recently read on one of the boards that this may be somewhat conservative as some licensing agreements for pharma products that amount to disruptive technologies might be closer to 35% to the patent holders.
A5.
Count: 600
-I have seen many different numbers on this one ranging from the basic share count outstanding today of 300M to my highest number of 600M. BobW had a very detailed analysis of shares outstanding of 412M but this was prior to the 50M ATM and the Deerfield agreements, I also believe that there has been additional pot of RSUs granted by the board. We should also factor in that Mr Mann's remaining LOC will most likely be converted as well at
So using BobW's starting number of 412 + Deerfields 24M (6M @ 6.80 *4) + ATM 7.3M (50M/6.80) + RSU 50M (SEC S-8 May 2013) + LOC Conversion 17.5M (119M/6.8)= 511M
I have been happy in the past to use 550M (which will allow for additional funnies aka dilution) not sure why I bumped it up to 600M but think that I might have been adding in the above additions but starting at 500M.
A6.
Time Discount: 10%
-Graciously provided by the Deerfield financing deal at 9.75% and round up for simplicity.
A7.
Time to End of 1 full Year of Sales: 2 years (from today)
-"from today" was back in May 2013 and using the following calendar:
Resubmission Oct 2013 + 6 month Review = FDA decision in Mar 2014
Add 2 months for ramp up and distribution sales should being in June 20.
Full year of sales on three lines will complete in May 2015
NOTE: assume that installation of new lines and inspections have been completed at FDA decision date
A8. (new item)
- In reading through the many electronic boards on MNKD and EXEL I have come across two stats of interest. First one is that 80% of drugs making it to Phase 3 are granted FDA approval. The second more interesting tidbit is that 80% of those doing a third submission to the FDA are finally accepted. Apologies are extended to the statisticians in the crowd but the number I am using as a success probability is going to be in excess of 80% as were not testing for the drug but the device, end points look to have been met and tests were developed in conjunction with FDA consultation.
I have modified thee calculation with the numbers as explained in this response:
Calc = ((Capacity X Contribution Margin) / Share Count) X Discount X P/E X Probability of Success (new)
= ((500000 X 500) / 550 000 000) X ((1+ 0.9.76)^2)^(-1) X P/E X PoS
= 25000000 / 550M * 1/1.204 X PoS
= 0.4545 X .8300 X PoS X P/E
= $0.3776 X 95% X P/E
= $0.3584 X P/E
Price assuming FDA approval, and partner:
P/E 18 = $ 6.45
P/E 25 = $ 8.96
P/E 30 = $10.75
P/E 50 = $17.92
_______________________________________________________
PART 3:
Addtional information to consider:
Quick RoT(rule of thumb) for calculating share price 12 - 16pps per million customers (higher PR in first years)
Market Penetration:
Expected growth rate in US (extrapolating to Canada): 100 to 200% increase by 205 or 1.7% annually
And a quote from Diabetes Canada
An estimated 285 million people worldwide are affected by diabetes. With a further 7 million people developing diabetes each year, this number is expected to hit 438 million by 2030.
US & CAN & Mexico: T1(10%) & T2(90%) = 26M + 3M + 11M
NA = 40M X (1.017)^years
EU = 52M
Rest of World (ROW) = 285 - 40 - 52 = 193M
So looking only at NA and EU markets we have a possible 92 million patiennt poulation.
For the sake of this calculation we will remove accomodation for prediabetic population which could increase these numbers by 50%.
Danbury by end of year of the first year of production will have a min of 3 lines operating, EU submission may have been blessed so Euro population will not be used for calculation of popential market.Sam may also apply to Can and Mex populations.
Assume Cost of new line is $10M installed, lead time 6 months
Year 1(US onlyapproved):
Danbury Output: 500K
Potential Market: 26M
Market Share: 500 000/26 000 000 = 1.9%
Sales: 500K X $2000 = $1B
Insulin: 10B - 1 B = 9B (prepurchased insulin remaining)
Profit: $250M
Tax effect: Carry forward losses reduced from 2B to 1.75 B
Dividend: 1% X $25pps X 550M = $137M
Reinvest in complete buildout = $90M (9 addtional lines at cost of $10M each)
Retained Earnings: $23M (expand Danbury location?
?)Market Cap: 13.75B
Year 2(NA + Euro approved):
Danbury Output: 2M
Potential Market: 92M
Market Share: 2M/92M = 2.17%
Sales: 2M X $2000 = $4B
Insulin: $9B - 4 B = $5B (prepurchased insulin remaining)
Profit: $1B
Tax effect: Carry forward losses reduced from 1.75B to taxable income of 250M at 30% = 75M
Dividend: 1% X $50pps X 550M = $225M
Reinvest in duplicate buildout: $170M (50M doubling of foot print + 12 additional lines at cost of $10M each)
Retained Earnings: $1B - 75M - 225M - 170M = $530M (European Plant?
)Market Cap: 27.5B
Year 3(World Market approvals and European plant facilities in place):
Danbury & Euro plants Output: 8M
Potential Market: 280M
Market Share:8M/280M = 2.85%
Sales: 8M X $2000 = $16B
Insulin: $5B - 16 B = all gone
Profit: $4B
Tax effect: $4B at 30% = 1.2B
Dividend: 2% X 96(8M X 12)pps X 550M = $1B
Reinvest in new facility: $340M (100M building + 24 additional lines at cost of $10M each)
Retained Earnings: $4B - 1.2B - $1B - 340M = $1.4B (ALL Debt retired, Share buyback, Subsidized Product for 3rd world?)
Market Cap: $52.2
Year 4(US and EU reach max penetration + additional plant):
Danbury & Euro plants Output: 12M
Potential Market: 280M
Market Share:12M/280M = 4.2%
Sales: 12M X $2000 = $24B
Insulin: all gone
Profit: $6B
Tax effect: $6B at 30% = 1.8B
Dividend: 2% X 144(12M X 12)pps X 550M = $1.5B
Reinvest in new facilities: $340M *3 = $1B
Retained Earnings: $6B - 1.8B - $1.5B - 1B = $1.7B (Share buyback, Additional Production)
Market Cap: $79.2B
Year 5(3 additional plants, max market penetration will be reached):
Danbury & Euro plants Output: 24M
Potential Market: 280M
Market Share:24M/280M = 8.6% (NA 8M(20% Market Share), EU 10M (20%), ROW 6M (1.5%))
Sales: 24M X $2000 = $48B
Insulin: all gone
Profit: $12B
Tax effect: $12B at 30% = 3.6B
Dividend: 2% X 288(24M X 12)pps X 550M = $3.2B
Reinvest in new facilities: max penetration reached.
Retained Earnings: $12B - 3.6B - $3.2B = $5.2B (Share buyback)
Market Cap: $152B
Avail for Buyback | Share Price | Share Count after | Dividend 2%
Year 6 5000000000 288 532638888 5.76
Year 7 5000000000 297 51582579 5.95
Year 8 5000000000 307 499543412 6.14
Year 9 5000000000 317 483774997 6.34
Year 10 5000000000 327 468504321 6.55
This is when it gets really interesting if you want to take a streach:
During all the buybacks Mann group did not sell, resulting in them gaining controlling interest.
Mann foundation then makes an offer to take it private at a 30% premium to current price for $400/share via debt/private equity offering.
Mann Foundation expands production with sight to providing lowcost diabetes treatment to the worlds populations that can least afford.
Mr Alfred Mann's legacy is complete.
Enjoy,
OOG
