SA: MannKind is Tripling Produciton to Meet Future Demand

[BD]

seekingalpha.com/article/2949156-mannkind-is-tripling-production-to-meet-future-demand


MannKind Is Tripling Production To Meet Future Demand
Feb. 25, 2015 10:46 AM ET | 40 comments | About: MannKind Corporation (MNKD), Includes: SNY

Disclosure: The author is long MNKD. (More...)
Summary

MannKind and Sanofi's Afrezza has been on the market for two weeks.
Demand for Afrezza sample packages blows past expectations.
MannKind is set to triple manufacturing in Q2 2015.
When will Afrezza materialize into profits for MannKind?

MannKind (NASDAQ:MNKD) recently released its Q4 and FY2014 earnings report and conducted a conference call. In my opinion, it was as good a news as one could have hoped for MannKind. Anyone who has been a realist knew that MannKind would not come out and give us any direct sales numbers from Afrezza. If they did so at this point in time, the figures would probably be disappointing, as a few weeks on the market is not enough time to create an impact. A good amount of people who have diabetes will need more than two weeks' time just to make an appointment, let alone go through the tests necessary to be prescribed Afrezza. Hakan Edstrom did leave us with an idea of how strong the potential is for a strong year, and even stronger future.
Afrezza Should Have Significant Sales Beginning Late FY 2015

No matter how much good news Afrezza has brought the company so far, none of it really matters until Afrezza can turn into a source of revenue. Sanofi (NYSE:SNY) and MannKind decided to do a slow rollout of the product since it is a new technology, and doctors will need to be educated on the drug before they are likely to prescribe it to patients. This is all stuff everyone has read before, but the conference call had some juicy information for MannKind bulls.

First off, when giving a round up of Afrezza, MannKind's CEO Hakam Edstrom, stated that Sanofi has been in touch requesting more sample packages as samples have blown past expectations. This tells us that word is getting out about Afrezza without any large marketing strategies directly to diabetes patients. This is good news because this presumably means the companies will have to spend less money on marketing and when they do market, diabetics will be largely accepting Afrezza.

Secondly, Edstrom also noted that MannKind is ramping up production in Q2 2015, and this will triple its current output of insulin. This should be taken as the best news from the conference call. Sanofi and MannKind would not be tripling production of insulin if they did not have reasonable beliefs that they will be needing large supplies of insulin in Q3 2015 and later.

The two bits of information above were easily the most bullish points about MannKind regarding Afrezza. Using these two tidbits of information, one can infer that MannKind and Sanofi both predict prescriptions of Afrezza to rapidly increase in Q3/Q4 2015. This will only continue to become more rapidly available to everyone in 2016 when lower-cost insurances will presumably cover the drug as its benefits are more widely known and studied. One benefit for insurance companies to cover Afrezza is that it will cause less hypoglycemic events needing ambulatory or emergency room care, which can cost an insurance company a couple thousand dollars per event.

Also, working in favor of MannKind is the Affordable Care Act. This allows lower-income citizens to receive health care at an affordable price. This could be huge; Afrezza has many new diabetics being prescribed insulin who will not want to inject it, if given the choice of simply inhaling instead. Along with the superior activity of Afrezza, it should not surprise anyone if doctors push Afrezza to patients just beginning to take insulin for their diabetes. More universal health insurance to the lower class may also help Afrezza sales because many of them could have diabetes now, but simply cannot afford to go to a doctor, or to be treated. Many lower-income families do not have the availability of fresh and quality foods, making their class one of the most likely to be diabetic due to poor eating habits.

At this point, I can only see one argument from a bear's point of view. Will people, and more importantly, insurance companies, give Afrezza a chance? Once a user tries Afrezza, there is no doubt, from information provided by current users of Afrezza, that they will feel better and love the new drug. But, often times with people, and Americans specifically, we have the attitude of "if something isn't broke, why fix it?" It could be this type of attitude that hurts Afrezza sales in the beginning.

[mnholdem]

Frankly, Matt led me to believe that all three lines would be ready in November 2014. I suspect that the delay was caused by retrofitting the new lines to fill 12-unit cartridges and possibly other sizes as well.

Regardless, my initial disappointment has been tempered by Hakan's report that production performance has exceeded expectations.

[kball]

Side note:
I believe Hakan said "more than triple" production.

And that the first line was yielding more than expected too

[otherottawaguy]

I had emails back from Matt in January that he thought the lines would be running by the end of Feb/early March. I was surprised to as I thought they had been firing since 2014 as well. Pretty sure that they had guided more recently towards beginning of Q2.

OOG

[mannmade]

Feb 26, 2015 13:43:35 GMT -5 otherottawaguy said:

I had emails back from Matt in January that he thought the lines would be running by the end of Feb/early March. I was surprised to as I thought they had been firing since 2014 as well. Pretty sure that they had guided more recently towards beginning of Q2.

OOG

My understanding is around middle of the year which would be June as I recall from earlier discussions.

[otherottawaguy]

Here is the email again:


Pfeffer,Matt

To me

Jan 23



The two additional lines are in place but must go through a lengthy testing and validation process. Will likely take another couple of months. A good reason to build up healthy pre-launch inventory.

Matt

Sent from my iPhone


On Jan 23, 2015, at 12:56 PM, OOG wrote:

Mr Pheffer:

Is there anyway that you can clear up how many production lines are currently certified and producing product at Danbury?

We know there is at least one (would have been hard to meet the production quota for launch), just wondering about the other two that you have mentioned that are about 10% greater in capacity that were supposed to have been on line in 2015. Speculation is that they are not online yet followed by speculation that they are avail and that is how the quota was met early.

Nice to have heard back from you before Christmas in response to my phone call.

Sincerely,

XXXXX

[otherottawaguy]

Note the above response was received on 23 Jan with an estimate of likely another couple of months. Ergo beginning of Apr (Q2) should be lift off for production numbers.

OOG

[kball]

^ Just a heads up...I think you misspelled his name in the email.
But very nice to share this with all of us

[mnholdem]

From: Pfeffer,Matt
Sent: Thursday, September 18, 2014 5:26 AM
To: [name withheld]
Subject: Plant timeline

[name withheld],


Great hearing from you! Yes, we plan to launch with 3 fill/finish lines, as stated. The plant was built and there are cleanrooms to support 12 such lines, but at about $10 million each, installed, we don't want to put them in more quickly than needed. Just the overhead of maintaining unused capacity would add considerably to the cost of the product, something I am sure you know very well. But remember that we can support about $800 million in sales, just from these existing lines. Fully equipped, the facility ought to be able to produce about 2 billion cartridges annually, which is a pretty startling number, give all the redundant quality control checks to assure that each and every one of those cartridges is exactly, precisely correct in its fill. That equates to about $4 billion in annual sales. We obviously hope we may someday (soon) need additional capacity, but we need to map our this strategy on conjunction with our partner, Sanofi, based on their plans for rolling out the product in other countries. This process is on hold pending HSR approval of the deal, but this is anticipated very soon. In the meantime, I am unable to elaborate on expansion plans. Philosophically, I am opposed to making sales projections in advance of a product launch. As the product matures, this becomes less of an issue, but at this stage is a poor combination of high risk and low reward. Detailing expansion plans is a backdoor into the same information, at least to the extent you assume we will build as we anticipate demand dictates.


Matt


p.s. Good catch on the CMC disclosure. I was trying to hint that some of these milestones could come pretty quickly. We are forbidden to say more than what we have, but most people have made pretty good guesses based on what Sanofi would find important in the near term from its supplier, who is still in the process of qualifying its second and third fill/finish lines and has not yet entered commercial production. We have said that such production will start in November to support a Q1-15 launch.

Technically, I suppose Matt didn't say that ALL THREE LINES would start production in November, but that's what I thought his letter to me (above) inferred. 

Matt's mention that plant expansion would be based on Sanofi's plan for rolling out in other countries caught my interest, though. It's obviously water under the bridge at this point, but you can see why I was disappointed when I heard at the end of December that only one line had been CMC certified. I was hoping to hear about lines 4-6 by then, not to mention a press release that the application for Centralized Authorization in Europe had been submitted.