Post by mannmade on Feb 26, 2015 14:49:11 GMT -5
seekingalpha.com/article/2954776-an-objective-we-think-up-to-date-look-at-mannkind?source=intbrokers_regular
The uncomfortably tight-lipped management of MannKind (NASDAQ: MNKD) talked with the investment community twice over the past two days, first on Tuesday during a conference call with Wall Street analysts and then the following morning at a healthcare conference conducted by RBC Capital. As is almost always the case in the bizarro world that the company seems to inhabit, the media was chockfull of articles about all-things MannKind, before and after the two appearances by the chief executive and chief financial officers, Hakan Edstrom and Matthew Pfeffer, respectively. Needless to say, at least to the many investors that follow the small biotech reasonably closely, not much positive was said by the assortment of pundits, columnists, and amateur analysts. Indeed, they were almost precisely in line with what we've come to expect in the aftermath of the black-is-white and white-is-black commentary that accompanied the release of phase 3 trial results, the Advisory Committee hearing, the FDA approval of Afrezza, and the securing of Sanofi as a marketing partner. Three years into following MannKind, it's still tough to know what constitutes good news for this so-called battleground company.
With that said, in this article, we first lay out the latest information provided by management, unvarnished and without interpretation, allowing the reader to determine for him or herself whether the news is good, bad, or inconsequential. We then toss in our two cents worth of analysis, leaving ourselves open to the often vicious back and forth commentary from what can only be characterized as an extraordinarily well-informed cohort of investors. In reviewing the statements made by management, we think the reader should take the following into consideration. Management has met every target that it has mentioned over the past few years. Moreover, it has been extremely conservative when talking with the investment community, virtually disappearing for long stretches of time and seldom exhibiting undue exuberance. Last, although some would like to imagine corporate executives as shysters looking to mislead investors, Wall Street has a very low tolerance for cheerleaders who don't deliver. And executives who aren't trusted by Wall Street don't occupy the corner suite for very long.
The information provided covers four general areas - historical earnings, the balance sheet, the Afrezza launch, and new applications for Technosphere. MannKind's bottom-line performance in 2014 isn't all that important since the company is essentially a far different entity going forward, so we'll large skip the review of last year's P&L.
The Balance Sheet
As of December 31, 2014, the company's balance sheet contained $120.8 million in cash and cash equivalents. As well, it had $50.0 million in receivables from Sanofi for achieving certain manufacturing milestones. The funds were received early this year, so the long-cash-strapped biotechnology concern had approximately $170.8 million in cash to fund both current operations and the new R&D programs that will be detailed below. As well, although not specified in the financial statements, MannKind has $30 million still available in a credit facility with Alfred Mann, the company's founder. On the other side of the ledger, the balance sheet contains $403.4 million in current liabilities. This includes roughly $100 million in senior convertible notes. They will convert into equity later this year if MNKD stock price is no lower than $6.80 a share, if memory serves. Another large chunk of the liabilities, perhaps as much as $200 million, reflects the payments from Sanofi, as they haven't been recognized as having been earned; it's still unclear how and when those payments will be recognized, but Mr. Pfeffer did indicate that investors would be fully briefed as they are being earned.
The Afrezza Launch
Over 1,200 Sanofi sales representatives attended a training session in Las Vegas last month. A soft commercial launch was initiated on February 3rd. According to Mr. Pfeffer, the reps were "clearly excited" by the opportunity to detail Afrezza. The company also reports a high level of excitement among general practitioners, given how easy Afrezza is to use and to learn how to use, which will allow the GPs to retain their patients rather than pass them on to endocrinologists.
MannKind didn't discuss the prescription data to date, noting that the dynamics of the product make the early numbers of little relevance. Demand is supposedly greater than originally anticipated, however, and Sanofi has asked the company to increase the provision of Afrezza samples. Management also noted that Sanofi initiated a "soft launch," in order to, among other things, make sure demand didn't outstrip supply; the company's sales representatives had ample time to fully detail physicians; and third-party reimbursement approvals were better established.
The launch should pick up steam in the months ahead considering the following:
1. Installation of additional capacity is on schedule, so production capacity should more than triple in the second quarter. Moreover, the facility in Danbury, Connecticut could accommodate another quadrupling in production capacity.
2. Sanofi filed an sNDA (supplemental New Drug Application) for a 12-unit dose in December, so the patients will have more options sometime in the second quarter; only four- and eight-unit doses are available currently.
3. Sanofi will roll out a second, major launch shortly, presumably after production capacity has ramped up.
4. No official advertising campaign has been initiated, yet, but commentary by patients excited by Afrezza is becoming increasing common on social media - YouTube, Facebook, and Twitter. Indeed, there are a number of Hollywood celebrities that have been publicly sharing their excitement with the product.
5. An advertising campaign will begin in the year's second half.
New Products in the Pipeline
Last summer, the company announced that it would have news concerning Technosphere in November and February. Late last fall, management didn't reveal much beyond saying that the company had "an embarrassment of riches." They were a little more informative in yesterday's conference call, indicating that the company, with the assistance of a major consulting group, had identified, validated, and commercially assessed the best applications for Technosphere. MannKind has decided to focus on three areas: pulmonary disease, pain, and oncology support. Significantly, the company has already identified the specific APIs (active pharmaceutical ingredient). Moreover, according to management, they all address serious unmet medical need; have comparatively short delivery times (or low cost of development); take advantage of the unique benefit of the company's delivery technology; and address large markets. The development of these drugs should get underway in stages over the coming months.
Significantly, too, the company remains in discussions with some other drugmakers to bring their API on to the Technosphere platform; nondisclosure agreements preclude any details. The one exception is the discussions between MannKind and Sanofi about the possibility of developing an inhaled GLP-1 product.
Our Two Cents
Although not reflected in the stock price, we're perfectly comfortable with both the nebulous trajectory of the Afrezza launch and management's actions in transitioning MannKind into a company that's not just about inhaled insulin. Sanofi's 1,200-plus sales force certainly puts to rest the detractors' suggestions that the large pharmaceutical company wasn't a fully committed partner. And its request for additional samples is clearly encouraging, contrary to how some have tried to spin this. After all, how significant is the cost of a 10-day sample pack when it could translate into a roughly $2,000 per year annuity that could run for 15, 20, 25 years. It's also difficult not to be optimistic about Afrezza's sales potential when one considers the huge target patient population and sees the videos and tweets by actual patients so excited by the product that they are publicly spreading the word. Just as injected insulin probably wouldn't have been developed if inhaled insulin had come first, it's hard to imagine anyone going on social media to broadcast their injecting themselves with insulin. Legendary Fidelity Magellan fund manager Peter Lynch was famous for advising "buy what you know." We think that advice applies perfectly when it comes to MNKD stock. Most of the investors who'll read this article probably know MannKind as well, if not better, than any other company, and are well aware of both the number of diabetics in the United States, let alone in the world, and the sales potential of Afrezza.
We can all quibble about the prescription data in week one, week two, etcetera, and what the appropriate profit margins and price/earnings multiples are, but, ultimately, it comes down to how comfortable we are with the overall story. For our part, we remain strongly bullish. Our earnings and price projections also remain unchanged, absent any concrete information to incorporate into a new earnings model.
Disclosure: The author is long MNKD.
The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.
The uncomfortably tight-lipped management of MannKind (NASDAQ: MNKD) talked with the investment community twice over the past two days, first on Tuesday during a conference call with Wall Street analysts and then the following morning at a healthcare conference conducted by RBC Capital. As is almost always the case in the bizarro world that the company seems to inhabit, the media was chockfull of articles about all-things MannKind, before and after the two appearances by the chief executive and chief financial officers, Hakan Edstrom and Matthew Pfeffer, respectively. Needless to say, at least to the many investors that follow the small biotech reasonably closely, not much positive was said by the assortment of pundits, columnists, and amateur analysts. Indeed, they were almost precisely in line with what we've come to expect in the aftermath of the black-is-white and white-is-black commentary that accompanied the release of phase 3 trial results, the Advisory Committee hearing, the FDA approval of Afrezza, and the securing of Sanofi as a marketing partner. Three years into following MannKind, it's still tough to know what constitutes good news for this so-called battleground company.
With that said, in this article, we first lay out the latest information provided by management, unvarnished and without interpretation, allowing the reader to determine for him or herself whether the news is good, bad, or inconsequential. We then toss in our two cents worth of analysis, leaving ourselves open to the often vicious back and forth commentary from what can only be characterized as an extraordinarily well-informed cohort of investors. In reviewing the statements made by management, we think the reader should take the following into consideration. Management has met every target that it has mentioned over the past few years. Moreover, it has been extremely conservative when talking with the investment community, virtually disappearing for long stretches of time and seldom exhibiting undue exuberance. Last, although some would like to imagine corporate executives as shysters looking to mislead investors, Wall Street has a very low tolerance for cheerleaders who don't deliver. And executives who aren't trusted by Wall Street don't occupy the corner suite for very long.
The information provided covers four general areas - historical earnings, the balance sheet, the Afrezza launch, and new applications for Technosphere. MannKind's bottom-line performance in 2014 isn't all that important since the company is essentially a far different entity going forward, so we'll large skip the review of last year's P&L.
The Balance Sheet
As of December 31, 2014, the company's balance sheet contained $120.8 million in cash and cash equivalents. As well, it had $50.0 million in receivables from Sanofi for achieving certain manufacturing milestones. The funds were received early this year, so the long-cash-strapped biotechnology concern had approximately $170.8 million in cash to fund both current operations and the new R&D programs that will be detailed below. As well, although not specified in the financial statements, MannKind has $30 million still available in a credit facility with Alfred Mann, the company's founder. On the other side of the ledger, the balance sheet contains $403.4 million in current liabilities. This includes roughly $100 million in senior convertible notes. They will convert into equity later this year if MNKD stock price is no lower than $6.80 a share, if memory serves. Another large chunk of the liabilities, perhaps as much as $200 million, reflects the payments from Sanofi, as they haven't been recognized as having been earned; it's still unclear how and when those payments will be recognized, but Mr. Pfeffer did indicate that investors would be fully briefed as they are being earned.
The Afrezza Launch
Over 1,200 Sanofi sales representatives attended a training session in Las Vegas last month. A soft commercial launch was initiated on February 3rd. According to Mr. Pfeffer, the reps were "clearly excited" by the opportunity to detail Afrezza. The company also reports a high level of excitement among general practitioners, given how easy Afrezza is to use and to learn how to use, which will allow the GPs to retain their patients rather than pass them on to endocrinologists.
MannKind didn't discuss the prescription data to date, noting that the dynamics of the product make the early numbers of little relevance. Demand is supposedly greater than originally anticipated, however, and Sanofi has asked the company to increase the provision of Afrezza samples. Management also noted that Sanofi initiated a "soft launch," in order to, among other things, make sure demand didn't outstrip supply; the company's sales representatives had ample time to fully detail physicians; and third-party reimbursement approvals were better established.
The launch should pick up steam in the months ahead considering the following:
1. Installation of additional capacity is on schedule, so production capacity should more than triple in the second quarter. Moreover, the facility in Danbury, Connecticut could accommodate another quadrupling in production capacity.
2. Sanofi filed an sNDA (supplemental New Drug Application) for a 12-unit dose in December, so the patients will have more options sometime in the second quarter; only four- and eight-unit doses are available currently.
3. Sanofi will roll out a second, major launch shortly, presumably after production capacity has ramped up.
4. No official advertising campaign has been initiated, yet, but commentary by patients excited by Afrezza is becoming increasing common on social media - YouTube, Facebook, and Twitter. Indeed, there are a number of Hollywood celebrities that have been publicly sharing their excitement with the product.
5. An advertising campaign will begin in the year's second half.
New Products in the Pipeline
Last summer, the company announced that it would have news concerning Technosphere in November and February. Late last fall, management didn't reveal much beyond saying that the company had "an embarrassment of riches." They were a little more informative in yesterday's conference call, indicating that the company, with the assistance of a major consulting group, had identified, validated, and commercially assessed the best applications for Technosphere. MannKind has decided to focus on three areas: pulmonary disease, pain, and oncology support. Significantly, the company has already identified the specific APIs (active pharmaceutical ingredient). Moreover, according to management, they all address serious unmet medical need; have comparatively short delivery times (or low cost of development); take advantage of the unique benefit of the company's delivery technology; and address large markets. The development of these drugs should get underway in stages over the coming months.
Significantly, too, the company remains in discussions with some other drugmakers to bring their API on to the Technosphere platform; nondisclosure agreements preclude any details. The one exception is the discussions between MannKind and Sanofi about the possibility of developing an inhaled GLP-1 product.
Our Two Cents
Although not reflected in the stock price, we're perfectly comfortable with both the nebulous trajectory of the Afrezza launch and management's actions in transitioning MannKind into a company that's not just about inhaled insulin. Sanofi's 1,200-plus sales force certainly puts to rest the detractors' suggestions that the large pharmaceutical company wasn't a fully committed partner. And its request for additional samples is clearly encouraging, contrary to how some have tried to spin this. After all, how significant is the cost of a 10-day sample pack when it could translate into a roughly $2,000 per year annuity that could run for 15, 20, 25 years. It's also difficult not to be optimistic about Afrezza's sales potential when one considers the huge target patient population and sees the videos and tweets by actual patients so excited by the product that they are publicly spreading the word. Just as injected insulin probably wouldn't have been developed if inhaled insulin had come first, it's hard to imagine anyone going on social media to broadcast their injecting themselves with insulin. Legendary Fidelity Magellan fund manager Peter Lynch was famous for advising "buy what you know." We think that advice applies perfectly when it comes to MNKD stock. Most of the investors who'll read this article probably know MannKind as well, if not better, than any other company, and are well aware of both the number of diabetics in the United States, let alone in the world, and the sales potential of Afrezza.
We can all quibble about the prescription data in week one, week two, etcetera, and what the appropriate profit margins and price/earnings multiples are, but, ultimately, it comes down to how comfortable we are with the overall story. For our part, we remain strongly bullish. Our earnings and price projections also remain unchanged, absent any concrete information to incorporate into a new earnings model.
Disclosure: The author is long MNKD.
The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.