Danbury Facilities Sale

[matt]

Deerfield is not a landlord, they are a hedge fund that does a lot of secured convertible loan deals. They are interested in cash, not in owning assets.

Most pharma facilities are the same, empty shells with specialized utilities for transporting water, waste, power and, most importantly, special air handling systems. Beyond that, each company builds production suites inside the shell designed to produce a particular product. All the magic and specialized technology is in the suite, the shell is fairly generic. Pharma facilities sell based on the price of building the shell and, sometimes, a premium if the buyer can move in quickly. The production suites are so specialized in most cases that they have no value to the buyer who must rebuild the suite for their product. The specialized equipment in the suite has a typical resale value of less than 20 cents, and often less than 10 cents, on the dollar.

So if somebody was going to do a sale and leaseback transaction, they would not pay what it cost MNKD to build the plant and would value the facility in line with industry norms. I am not sure that is a good tradeoff financially under the circumstances.

Note also that Sanofi has a first call on any proceeds from a sale of Valencia to pay down their line of credit. There is not a lot of easy cash available in the hard assets. It is going to be a case of make the products work or fail as a business. Damn the torpedoes, full speed ahead.

[chuck]

Matt - what are your thoughts about the possibility of a parting gift from sny? To me this seems like wishful thinking but is this common place in biotech deals?

[suebeeee1]

Jan 14, 2016 17:38:21 GMT -5 lakers said:

Jan 14, 2016 13:21:38 GMT -5 mnholdem said:

[$135M indemnification considering that Pfizer sunk $3B into Exubera. Sanofi only sunk 200M + 65M*2 + small saleforce + limited mag ads ~ $400M. The Sanofi indemnification gonna be much larger than $135M. Mnkd has good leverage in this strong case. Mnkd is qualifying Sanofi's insulin for Afrezza. This milestone bonus is $25M which is similar to the above contract research revenue by Nektar.]

I agree.  In order to avoid a large lawsuit and further reduction in the ability of Sanofi to partner with anyone in the future, I think they will be paying up.  I assume the terms will include the absolution of the debt and 30-50 million more.  It would be preferable if Sanofi simply paid MNKD upwards of $150M (or more) and kept the loan in place for the next 10 years.  That would allow us far more time to work out our survival.  However, it seems very possible that Sanofi will want to take care of covering their debt first and include that in the settlement.

[agedhippie]

While I would love a large cash payment from Sanofi but I cannot see it coming. It's the difference between walking away from a property lease vs. exercising a break clause. If you walk away you have a continuing liability and will have to settle that which is what happened with Pfizer. The $135 million was not a goodwill gesture but a settlement for outstanding contractual liabilities. In the Sanofi case there are no outstanding contractual liabilities since they exercise the break clause in the contract. The break clause was there specifically to avoid liability.

There may be some goodwill gestures. I could see Sanofi waiving their 65% of the revenue for Afrezza sold by Mannkind, maybe allowing the continued use of the credit facility for the Afrezza losses, and covering the remaining cost of trials that are in progress. Beyond that I would be very surprised if they did anything.