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Post by mnkdmorelong on Jan 13, 2016 9:56:33 GMT -5
Actually, I think that I know the answer anyway, but I'd still like Matt to put the answer out there regarding competitive pricing. It was Matt, himself, who let slip over a year ago that the Sanofi 65/35 split was the equivalent of a mid-20% royalties deal. Anyone who knows how to reverse-engineer the numbers can use that comment of Matt's to calculate that Afrezza is manufactured at about 85%-90% profit margin. This is very interesting. Did Matt say they were selling to SNY at 85-90% GM? This would be a profit center. Then at the back end, MNKD earns about 25% on the 65/35 split. Or does the 25% include the selling of Afrezza to SNY profit center? |
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Post by Deleted on Jan 13, 2016 9:59:22 GMT -5
Actually, I think that I know the answer anyway, but I'd still like Matt to put the answer out there regarding competitive pricing. It was Matt, himself, who let slip over a year ago that the Sanofi 65/35 split was the equivalent of a mid-20% royalties deal. Anyone who knows how to reverse-engineer the numbers can use that comment of Matt's to calculate that Afrezza is manufactured at about 85%-90% profit margin. This is very interesting. Did Matt say they were selling to SNY at 85-90% GM? This would be a profit center. Then at the back end, MNKD earns about 25% on the 65/35 split. Or does the 25% include the selling of Afrezza to SNY profit center? sell to SNY @ cost. after everything said and done - equivalent to 25% royalty |
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Post by mnkdmorelong on Jan 13, 2016 10:35:01 GMT -5
This is very interesting. Did Matt say they were selling to SNY at 85-90% GM? This would be a profit center. Then at the back end, MNKD earns about 25% on the 65/35 split. Or does the 25% include the selling of Afrezza to SNY profit center? sell to SNY @ cost. after everything said and done - equivalent to 25% royalty Thanks for the clarification. We can now crank some numbers: The best model to view financial reality is breakeven. Long term, profitability is important. Breakeven ensures that MNKD will live to fight another day. We know that at essentially zero sales, MNKD's share of the losses was $45 mln for three quarters ($60 mln FY). We know also that MNKD corporate is burning $90 mln/yr. As sales grow, they will incur a salesman' commission of approximately 10%. I assume this is captured in the 25% royalty rate. We can create an equation: one side will have cash burn ($60 +$90 mln). On the other side, we have cash flow: 25% of Sales multiplied by 0.5 to account for the price decrease. This yields $1,200 mln as the breakeven point for MNKD/SNY. This is year one. In subsequent years, the loss of $60 will be less. Let's try to create a go it alone model: Costs would be all on MNKD: $60 divided by 0.35 = $170 mln. Corporate burn would be the same at $90 mln. One side of the equation is $260 mln. The other side is 100% of sales multiplied by 0.5. This yield $520 mln in sales for MNKD to achieve breakeven. The go it alone model requires huge investment in a sales and marketing force. Is $170 mln cost for MNKD on go it alone valid. Many here chide at the huge cost SNY imposed on the partnership. Keep in mind that I have not included the safety study. These are my financial models. I know you guys don't like the way I crank the numbers because they tell a story you do not like to hear. If you have a better way, post it. |
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Post by mnkdmorelong on Jan 13, 2016 12:10:07 GMT -5
sell to SNY @ cost. after everything said and done - equivalent to 25% royalty Thanks for the clarification. We can now crank some numbers: The best model to view financial reality is breakeven. Long term, profitability is important. Breakeven ensures that MNKD will live to fight another day. We know that at essentially zero sales, MNKD's share of the losses was $45 mln for three quarters ($60 mln FY). We know also that MNKD corporate is burning $90 mln/yr. As sales grow, they will incur a salesman' commission of approximately 10%. I assume this is captured in the 25% royalty rate. We can create an equation: one side will have cash burn ($60 +$90 mln). On the other side, we have cash flow: 25% of Sales multiplied by 0.5 to account for the price decrease. This yields $1,200 mln as the breakeven point for MNKD/SNY. This is year one. In subsequent years, the loss of $60 will be less. Let's try to create a go it alone model: Costs would be all on MNKD: $60 divided by 0.35 = $170 mln. Corporate burn would be the same at $90 mln. One side of the equation is $260 mln. The other side is 100% of sales multiplied by 0.5. This yield $520 mln in sales for MNKD to achieve breakeven. The go it alone model requires huge investment in a sales and marketing force. Is $170 mln cost for MNKD on go it alone valid. Many here chide at the huge cost SNY imposed on the partnership. Keep in mind that I have not included the safety study. These are my financial models. I know you guys don't like the way I crank the numbers because they tell a story you do not like to hear. If you have a better way, post it. Nobody caught my mistake. In the go it alone model, is not possible for cash flow from sales to be 100% Duh! I substituted the 65/35 split upon the 25% Royalty and came up with 0.46% of sales is cash flow. This means the go it alone model has a breakeven point of $1,130 mln, about the same as the MNKD/SNY deal. What is going on here? I think what the numbers are telling me is that Afrezza has a high COGS. |
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Post by Deleted on Jan 13, 2016 12:19:26 GMT -5
Thanks for the clarification. We can now crank some numbers: The best model to view financial reality is breakeven. Long term, profitability is important. Breakeven ensures that MNKD will live to fight another day. We know that at essentially zero sales, MNKD's share of the losses was $45 mln for three quarters ($60 mln FY). We know also that MNKD corporate is burning $90 mln/yr. As sales grow, they will incur a salesman' commission of approximately 10%. I assume this is captured in the 25% royalty rate. We can create an equation: one side will have cash burn ($60 +$90 mln). On the other side, we have cash flow: 25% of Sales multiplied by 0.5 to account for the price decrease. This yields $1,200 mln as the breakeven point for MNKD/SNY. This is year one. In subsequent years, the loss of $60 will be less. Let's try to create a go it alone model: Costs would be all on MNKD: $60 divided by 0.35 = $170 mln. Corporate burn would be the same at $90 mln. One side of the equation is $260 mln. The other side is 100% of sales multiplied by 0.5. This yield $520 mln in sales for MNKD to achieve breakeven. The go it alone model requires huge investment in a sales and marketing force. Is $170 mln cost for MNKD on go it alone valid. Many here chide at the huge cost SNY imposed on the partnership. Keep in mind that I have not included the safety study. These are my financial models. I know you guys don't like the way I crank the numbers because they tell a story you do not like to hear. If you have a better way, post it. Nobody caught my mistake. In the go it alone model, is not possible for cash flow from sales to be 100% Duh! I substituted the 65/35 split upon the 25% Royalty and came up with 0.46% of sales is cash flow. This means the go it alone model has a breakeven point of $1,130 mln, about the same as the MNKD/SNY deal. What is going on here? I think what the numbers are telling me is that Afrezza has a high COGS. ok |
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Post by figglebird on Jan 13, 2016 12:49:35 GMT -5
COGS - my guess is it is likely be a bit higher then competing products today. It would be hard to fathom how it could be 50pct higher but when you take into account scale you're going to see some decrease over time. The second reason is insulin. Insulin, continues to see tremendous growth as a high margin product and sub-sector - in theory it should be cheap but because it has been continuously "improved" insulin producers have been able to re-extend patents for decades, inflating true costs etc - today, generic insulin has finally started to enter the market(lly) and so have more manufactures, most trying to solidify more market share (I believe this was part if not the crux of conflict between amphastar and sanofi).
I have heard that insulin is almost as cheap to produce as water so the generic angle is clearly a major factor.
BUT irrispective of the current price of insulin, Afrezza, as it stands today, may need to deliver approx 2.2 x more of it then subq's because of the variance of its bioavailability(which is almost twice that of exhubra) - the most underapreciated but economically important factor as to why afrezza is far more viable then its predescessor but another reason why it may be more costly then subq's at the moment.
This is my logic not something that is widely discussed so it's hard to know exactly the difference - however, if afrezza uses or requires more insulin, it should benefit as insulin costs come down.... but bc insulin is one of the most profitable components of the sector, it has taken a longer time for generic insulin to even avail itself.
The key may be in however or whatever ammendments can be altered with respect to our supplier at the moment etc especially going forward. My sense is that Al struck a strategic partnership with the newly assembled amphastar brand w roots back to Cal - so as always, reworked deals on the basis of survival should be viable.
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Post by mnkdmorelong on Jan 13, 2016 13:03:26 GMT -5
COGS - my guess is it is likely be a bit higher then competing products today. It would be hard to fathom how it could be 50pct higher but when you take into account scale you're going to see some decrease over time. The second reason is insulin. Insulin, continues to see tremendous growth as a high margin product and sub-sector - in theory it should be cheap but because it has been continuously "improved" insulin producers have been able to re-extend patents for decades, inflating true costs etc - today, generic insulin has finally started to enter the market(lly) and so have more manufactures, most trying to solidify more market share (I believe this was part if not the crux of conflict between amphastar and sanofi). I have heard that insulin is almost as cheap to produce as water so the generic angle is clearly a major factor. BUT irrispective of the current price of insulin, Afrezza, as it stands today, may need to deliver approx 2.2 x more of it then subq's because of the variance of its bioavailability(which is almost twice that of exhubra) - the most underapreciated but economically important factor as to why afrezza is far more viable then its predescessor but another reason why it may be more costly then subq's at the moment. This is my logic not something that is widely discussed so it's hard to know exactly the difference - however, if afrezza uses or requires more insulin, it should benefit as insulin costs come down.... but bc insulin is one of the most profitable components of the sector, it has taken a longer time for generic insulin to even avail itself. The key may be in however or whatever ammendments can be altered with respect to our supplier at the moment etc especially going forward. My sense is that Al struck a strategic partnership with the newly assembled amphastar brand w roots back to Cal - so as always, reworked deals on the basis of survival should be viable. What do we know about the TS step? This is a a chemical process and must cost something. There is no equivalent cost in competing RAA. The dreamboat whistle has got to cost no more than a pen. Something tells me that both SNY and MNKD went to market with a premium priced product. They had no response when they got pushback from insurance companies. The no response may be caused by the high COGS. This may be the reason why SNY did not do the EU; prices there are even lower than here. If cost is the issue, MNKD has got to change. Qualifying a new insulin vendor is not cheap nor quick. |
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Post by figglebird on Jan 13, 2016 13:07:19 GMT -5
No, the TS step is accounted for with BIOAVAILABILITY.
Approx 80pct of the insulin in subq's reach intended target as opposed to approx 37 pct of TS Afrezza - this is the difference - Exhubra was in the low 20's or high teens.
Do the math - you need approx twice as much ts insulin as you would subq insulin.
Bioavailability.
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Post by mnkdmorelong on Jan 13, 2016 13:15:34 GMT -5
No, the TS step is accounted for with BIOAVAILABILITY. Approx 80pct of the insulin in subq's reach intended target as opposed to approx 37 pct of TS Afrezza - this is the difference - Exhubra was in the low 20's or high teens. Do the math - you need approx twice as much ts insulin as you would subq insulin. Bioavailability. Ah! I get your point. Insulin is attached to the TS particle by electrostatic forces. Why does not all 100% become available? I thought that was the deal? Another question is dosage. If TS particles deliver a variable amount of insulin, this is bad. |
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Post by mnholdem on Jan 13, 2016 13:16:21 GMT -5
"What is going on here? I think what the numbers are telling me is that Afrezza has a high COGS." - mnkdmorelong
By using MannKind's $45M expenses over three quarters (per Sanofi loan facility), you have included sales & marketing expenses in your calculations.
Cost of goods sold (COGS) are the direct costs attributable to the production of the goods sold by a company. This amount includes the cost of the materials used in creating the good along with the direct labor costs used to produce the good. It excludes indirect expenses such as distribution costs and sales force costs. COGS appears on the income statement and can be deducted from revenue to calculate a company's gross margin. Also referred to as "cost of sales."
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Post by figglebird on Jan 13, 2016 13:27:54 GMT -5
First of all, this has always been the case and is widely known.
In pharmacology, bioavailability is mostly subject to its delivery system.
Inhalables/pulmonary admin, pills/oral admin, have lower bioavailabilities then subq's. Their variance is also less predictable.
The fact that TS was able to increase its bioavailability by 75-90pct from Exhubra's is a testament to Mann's scientific understanding(buying TS) and business acumen, applying it.
If you are coming to this now, which it seems you are, I don't know what to say other then there are pro's and cons with less bio availability - the variance in the 37pct number though more consistent then exhubra is not ideal if comparing apples to apples but subq's imo opinion are prunes.
TS formulation can and may need to be improved upon as/if competitors creep up, but for now it is the best there is for any inhalable FDA approved insulin.
The key component here will come down to the evolving insulin market. The rest will take care of itself.
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Post by mnkdmorelong on Jan 13, 2016 13:28:01 GMT -5
"What is going on here? I think what the numbers are telling me is that Afrezza has a high COGS." - mnkdmorelong
By using MannKind's $45M expenses over three quarters (per Sanofi loan facility), you have included sales & marketing expenses in your calculations.
Cost of goods sold (COGS) are the direct costs attributable to the production of the goods sold by a company. This amount includes the cost of the materials used in creating the good along with the direct labor costs used to produce the good. It excludes indirect expenses such as distribution costs and sales force costs. COGS appears on the income statement and can be deducted from revenue to calculate a company's gross margin. Also referred to as "cost of sales."
COGS is a manufacturing term. It includes all the direct and indirect cost of making the widget. Examples of indirect cost are machine depreciation, building depreciation. It is the all-in cost of the product as it leaves the factory. Once outside the factory, there are distribution costs; the largest is salesman's commissions. Collectively, COGS + Commissions comprise Cost of Sales. Why would I not include the $60 mln in my calculation? My model is based on 25% royalties on Net Sales.I don't get what you are writing. |
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Post by james on Jan 13, 2016 13:31:55 GMT -5
Nobody caught my mistake. In the go it alone model, is not possible for cash flow from sales to be 100% Duh! I substituted the 65/35 split upon the 25% Royalty and came up with 0.46% of sales is cash flow. This means the go it alone model has a breakeven point of $1,130 mln, about the same as the MNKD/SNY deal. What is going on here? I think what the numbers are telling me is that Afrezza has a high COGS. ok I hope this doesn't come off too poorly, but what is going on is that you need a better model. There are fixed costs and variable costs. The $170M JV costs you came up with at zero sales amount to fixed costs (although this also includes start up costs and costs unique to managing a joint venture, so probably high to use for an ongoing MNKD venture). On top of that are variable costs; you suggest 10% for commissions. I would also suggest 10% variable for raw materials and manufacturing expense. At $200M sales, that would make for maybe $40M in variable costs added to say $160M in fixed costs. That is your estimated break even point for Afrezza. Break even for MNKD would happen around $300M in sales. |
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Post by mnholdem on Jan 13, 2016 13:46:05 GMT -5
"Something tells me that both SNY and MNKD went to market with a premium priced product. They had no response when they got pushback from insurance companies. The no response may be caused by the high COGS. This may be the reason why SNY did not do the EU; prices there are even lower than here."
I have to head off to a meeting (so feel free to continue - maybe other board members can better explain) but, even if I were to accept your inclusion that sales/marketing expenses are part of COGS - which is incorrect - the other problem in your statement above that the "no response" to assumed pushback from insurance companies "may be caused by the high COGS" is that License & Collaboration Agreement gave Sanofi sole power over pricing (a huge mistake in my opinion). Matt has already stated that they identified problems with Sanofi deciding to price Afrezza at a premium early in the launch.
I realize that you used the words, "may have caused" but the whole idea of Afrezza having a high COGS is ridiculous, in my opinion, and I'm convinced that MannKind has plenty of room to competitively price this product, which implies that Sanofi chose NOT to. Early on, I thought that was because Sanofi was gathering real-world data that would soon justify the high price. Now, I (and many others) think that Sanofi priced Afrezza to prevent/limit coverage by 3rd party payers.
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Post by mnkdnewb on Jan 13, 2016 13:49:54 GMT -5
I would like to know:
when will the clamp study results will be released?
Does Mannkind have rights to any and all information sanofi collected from insurance, users, etc?
And as others have suggested, will Matt buy in with personal money, what is the plan going forward, what specifically is going on with the pipeline of ts products.
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