How to calculate the actual valuation

[topcard]

Dec 15, 2015 12:20:47 GMT -5 traderdennis said:

Dec 15, 2015 9:03:09 GMT -5 topcard said:

First 5K is an unrealistic number per RX.  With discounting, rx cards, etc that number will be closer to 3K.

Second I don't see how on earth we get to 200K full rx's next year, and 5x, 2x, etc the following years.  

~shrug~
That's what I gathered was the retail price of an annual prescription ($5000)...and what Matt based his "25% royalty" comparison on.

Getting to 200K patients? Less than 1% of the US diabetic population? I don't think that's overly optimistic at all. Tier 2 & a "superior" label, along with DTC television? I think it's quite possible that 200K will be low...it could be much higher. Getting to 3900 a week? We're at what? 600 now, with limited tier 2 & only a "non-inferior" label. 
A 6x or 7x increase is, in my view, quite reasonable to expect for 2016 - again, assuming that insurance & label issues are resolved.

[james]

Dec 15, 2015 12:31:41 GMT -5 topcard said:

Dec 15, 2015 12:20:47 GMT -5 traderdennis said:

First 5K is an unrealistic number per RX.  With discounting, rx cards, etc that number will be closer to 3K.

Second I don't see how on earth we get to 200K full rx's next year, and 5x, 2x, etc the following years.  

~shrug~
That's what I gathered was the retail price of an annual prescription ($5000)...and what Matt based his "25% royalty" comparison on.

Getting to 200K patients? Less than 1% of the US diabetic population? I don't think that's overly optimistic at all. Tier 2 & a "superior" label, along with DTC television? I think it's quite possible that 200K will be low...it could be much higher. Getting to 3900 a week? We're at what? 600 now, with limited tier 2 & only a "non-inferior" label. 
A 6x or 7x increase is, in my view, quite reasonable to expect for 2016 - again, assuming that insurance & label issues are resolved.

Uh - 600 is the weekly total number of prescriptions that are filled and probably represent a current patient population of maybe 5 or 6,000.  The $$ sales reported by Symphony therefore represent something like $3K per year per patient.

[topcard]

Ok then... $3000 per patient/year it is:
So, re-working the math -

Now - using Matt's 25% royalty equivalency, and assuming $3000/year for each patient, we can compute the "5 year projected profit":
2016 - 200K x 3000 x 25% = $150 million.
2017 - 5 x the 2016 number = $750 million
2018 - 2 x the 2017 number = $1.5 billion
2019 - 1.33 x the 2018 number = $2 billion
2020 - 2 x the 2018 number = $4 billion
Total profit = $8.4 billion... divide that by, oh, let's say with some dilution, 500 million shares = $16.80 PPS

Better?

[gamblerjag]

where is the P/E?

[topcard]

Dec 15, 2015 13:34:00 GMT -5 gamblerjag said:

where is the P/E?

Gambler... I was using a formula I read about a few years ago that, when trying to compute the current valuation of a biopharma stock/company, one should project the expected profits earned for the upcoming 5 years (cummulative) and divide by the estimated total number of shares at the end of those 5 years... no P/E.

So - assuming my patient totals/projections are correct, and the $3000/patient per year is correct, MNKD ought to be worth about $17 a share today.
But of course, in MNKD's case, we are forceed to assume several things that were not factors in the formula I read about:
1. Acquiring widespread Tier 2 coverage
2. Securing a "superior" label.
3. Actually beginning DTC television advertising.

In my opinion, those three things have to happen in order for my patient projections to actually occur.

[parrerob]

Dec 15, 2015 13:28:57 GMT -5 topcard said:

Ok then... $3000 per patient/year it is:
So, re-working the math -

Now - using Matt's 25% royalty equivalency, and assuming $3000/year for each patient, we can compute the "5 year projected profit":
2016 - 200K x 3000 x 25% = $150 million.
2017 - 5 x the 2016 number = $750 million
2018 - 2 x the 2017 number = $1.5 billion
2019 - 1.33 x the 2018 number = $2 billion
2020 - 2 x the 2018 number = $4 billion
Total profit = $8.4 billion... divide that by, oh, let's say with


Assumption... this is Just a game as we will never see any of this value, mine and yourself, in a short term reality.

Any case if you count 200k for 2016 in that way it means we need 200k since january the first. That's I was saying. If you Mean 200k
At The end of the year... that's another Story. But numbers change a lot

[traderdennis]

Dec 15, 2015 13:28:57 GMT -5 topcard said:

Ok then... $3000 per patient/year it is:
So, re-working the math -

Now - using Matt's 25% royalty equivalency, and assuming $3000/year for each patient, we can compute the "5 year projected profit":
2016 - 200K x 3000 x 25% = $150 million.
2017 - 5 x the 2016 number = $750 million
2018 - 2 x the 2017 number = $1.5 billion
2019 - 1.33 x the 2018 number = $2 billion
2020 - 2 x the 2018 number = $4 billion
Total profit = $8.4 billion... divide that by, oh, let's say with some dilution, 500 million shares = $16.80 PPS

Better?

Ah no. Even at your meteoric increase of new users, if a new user starts in July, they only generate 1/2 the revenue per year.  With a geometric progression the number of new users are weighted in the back of the year, not the front.  For simplicity sake, just add about a year and change 2020 to 2021.
2.  As they go international, the amount for each patient decreases.  With a single payer system in the EU and Canada Japan the partnership will get substaintially less then even the 3K in this assumption.
3.  As they go to 2nd and 3rd world companies, only the rich will pay retail, or the poor will pay even less than EU and Canada.
4.  I believe when a user gets an rx with 3 refills, it is counted as one new and then 3 more refills.  When they go for a follow up and get a new order, they are then counted as a new RX and x number of refills on their second script.

We are at 400 Million shares after TASE.  I would not be surprised see dilution greater than the 100 million shares above.

[james]

Dec 15, 2015 13:28:57 GMT -5 topcard said:

Ok then... $3000 per patient/year it is:
So, re-working the math -

Now - using Matt's 25% royalty equivalency, and assuming $3000/year for each patient, we can compute the "5 year projected profit":
2016 - 200K x 3000 x 25% = $150 million.
2017 - 5 x the 2016 number = $750 million
2018 - 2 x the 2017 number = $1.5 billion
2019 - 1.33 x the 2018 number = $2 billion
2020 - 2 x the 2018 number = $4 billion
Total profit = $8.4 billion... divide that by, oh, let's say with some dilution, 500 million shares = $16.80 PPS

Better?

I guess I don't buy your numbers on the patient population here.  By 2020 you would have 5M patients on Afrezza and $16B in gross sales, which seems far fetched.  On the other hand, valuing based on the 5 years of profit would considerably understate the recognizable value of the income stream.  You have also not factored in the milestone payments that would be payed out along the way as well as the existing G&A expenses, etc. and so forth...

I think a more reasonable valuation might see 200K patients in 2019 or 2020 for $500M annual gross sales.  I work that out to $150M profit to MNKD (not showing all the math of course) which comes down to $.30 / share.  Using a 30X multiple would yield a $9 valuation in that year excluding any potential for additional TS applications.

Things could certainly work out substantially higher or lower, this seems like something of a middle ground for me.  It's all speculative at this point because so much depends on the rate of sales growth.

[parrerob]

years

Dec 15, 2015 13:59:06 GMT -5 james said:

Dec 15, 2015 13:28:57 GMT -5 topcard said:

Ok then... $3000 per patient/year it is:
So, re-working the math -

Now - using Matt's 25% royalty equivalency, and assuming $3000/year for each patient, we can compute the "5 year projected profit":
2016 - 200K x 3000 x 25% = $150 million.
2017 - 5 x the 2016 number = $750 million
2018 - 2 x the 2017 number = $1.5 billion
2019 - 1.33 x the 2018 number = $2 billion
2020 - 2 x the 2018 number = $4 billion
Total profit = $8.4 billion... divide that by, oh, let's say with some dilution, 500 million shares = $16.80 PPS

Better?

I guess I don't buy your numbers on the patient population here.  By 2020 you would have 5M patients on Afrezza and $16B in gross sales, which seems far fetched.  On the other hand, valuing based on the 5 years of profit would considerably understate the recognizable value of the income stream.  You have also not factored in the milestone payments that would be payed out along the way as well as the existing G&A expenses, etc. and so forth...

I think a more reasonable valuation might see 200K patients in 2019 or 2020 for $500M annual gross sales.  I work that out to $150M profit to MNKD (not showing all the math of course) which comes down to $.30 / share.  Using a 30X multiple would yield a $9 valuation in that year excluding any potential for additional TS applications.

Things could certainly work out substantially higher or lower, this seems like something of a middle ground for me.  It's all speculative at this point because so much depends on the rate of sales growth.

James, totally agree with Your much more prudent numbers.... Any case one point for TopCard is the 5 years rule ! If annual sales grow up to $500M then in 2019 PPS should include also the future growth ....
If.....

[matt]

Having actually spent a good part of my career doing valuations for pharma and device companies . . . none of the formulas thrown out are the way it is done. Eventually it all comes down to the net cash a deal will generate, which is some combination of increased sales, decreased costs (we can fire most of your headquarters people), manufacturing synergies (fancy name for closing / consolidating plants) and once in a while, but VERY RARELY do we want to keep an asset out of the hands of a competitor.

Then we get the company as cheaply as we can, which usually means market value of equity plus a premium (20-30% for mature companies, 30-50% for rapidly growing). Afrezza would be a big crap shoot because it has tiny sales and no growth to speak of. Big companies don't even start kicking the tires on deals until the slam dunk certain sales number gets into the hundreds of millions because that is what it takes to move the needle. If you are a $50 billion company, increasing annual sales by $100 million doesn't make much difference to the numbers.

The buyer never, ever, ever pays what the company is worth to them because then the buyer would have all the risk and everything has to go perfectly according to the script for their shareholders to enjoy some profit, and trust me, it never goes according to the script. The basic premise of this thread, that a company should be willing to pay what it would cost to reproduce Afrezza, is fundamentally misguided. The question is better stated as what other uses does management have for its cash including dividends, buy down of debt, buy back of stock, therapeutic programs other than inhaled insulin. If any of those are better, the project won't get done at all and most projects never make it to the finish line. Pfizer, for example, did great with metabolic drugs in the 1990's and early 2000's, but then decided to get out of metabolic drugs for the most part as the patents on Lipitor expired. You couldn't give Pfizer Afrezza on a gold platter because they are now mostly focused on pain, cancer, and neurological segments. If a drug doesn't fit with the articulated strategy, it is worth nothing to the wrong potential buyer.

Which leaves MNKD with just a handful of companies that are in the diabetes segment, want to stay in the diabetes segment, and have a hole to plug in their product portfolio. From a strategic view, Sanofi was not a bad choice given the options. The risk is that Oliver Brandicourt decides to milk the investment in diabetes and invest fresh case in other therapeutic segments the way Pfizer has. That would leave Afrezza as a third tier drug in a dying division. There is no easy answer for that.

[mnholdem]

There is no easy answer for that particular choice but it is far from the only choice Brandicourt & Witz have for this new Global Business Unit.

[morfu]

Well, it should be possible to generate a model for these numbers and an estimate from that..

What keeps my hopes up is that we see a steady increase in the NRx.. not only there are new patients, but they are coming in greater numbers every week.. it would be very good if this trend keeps holding for a while..

Looking at the Symphony numbers one could guestimate that the numbers of new patients increase by 1.7% every week (and thus more than double over the next year).. I struggle a little bit getting to the TRx from there .. In principle the TRx should be the (NRx + TRx) from about 12 weeks earlier, but even assuming only 77% of the patients stay with Afrezza, the cumulative number get too high..

Hopefully somebody can come up with a better model, I simply plugged
 - the NRX number from week 15 (232) into an excel cell (A1) and calculated An+1 =An*1.017
 - set cell B13 to (A1+B1)*0.77
 - filled B1 to B12 with values around 350 (progressive)

This results in reasonable values for NRx and TRx for week 45, but as I said the sum is too high.. anyone with a better model or helpful correction please step forward!!! how can I approximate the total number of prescriptions for 2015 using the NRx!?

In any case, Symphony seems to assume a 90day-refill value of about 500$ (however this number seems to increase over time), which fits with the 2000$ per patient and year I seem to remember from last year pricing statements.. of which about 125$ should be for Mannkind's shareholder
Running this model forward, Mannkind can expect about 20Mil in 2016 and 75Mil in 2017 => it will take Mannkind about 3 years to make a profit unless something changes the trend...

[kball]

^ How can we use these figures when
1. advertising will begin in earnest
2. more doctors will be prescribing
3. more insurance will cover
4. other countries will come online

I can see estimates all over the map with none coming near

[topcard]

Dec 15, 2015 14:59:24 GMT -5 matt said:

...  Big companies don't even start kicking the tires on deals until the slam dunk certain sales number gets into the hundreds of millions because that is what it takes to move the needle...

Really? It's simply amazing then, the number of buyouts that have occurred with companies that don't even have an FDA approved drug, are still in phase II and have zero sales/profit.

[topcard]

...in any event, I wasn't attempting to show what MNKD could/should be "bought" for... the OP was asking how one determines a current valuation.

Go back and read my initial reply... the 5-years of profit (with no P/E) formula was one I read about years ago... not my formula.

Now - the patient growth speculation was indeed mine.

There are 29 million diabetics in the US and 382 million of them gloabally (WHO, 2013).

I throw out an estimate of 4 million globally by the end of 2020 and y'all think that is unrealistic? That's 1% market share (give or take).
I hardly think that's either overly-optimistic or unrealistic... in fact, I'd say it's rather conservative.