Looking At The Glass As Half Full

[centralcoastinvestor]

As is the case for most long time investors in Mnkd, I have been contemplating the woulda shoulda coulda scenarios for Mannkind and Afrezza.  

The first question that comes to mind is whether Mnkd should have partnered with Sanofi in the first place.  It seems to me that Mnkd just did not have the money to do any kind of launch.  So they needed a partner of some kind.  I believe that until the CEO got fired from Sanofi, Mnkd was in good hands.  I for one just could not imagine that a change in CEO could have shifted the attitude for Afrezza so dramatically.  So at the very least, Sanofi provided up front funding, helped to complete two studies and start two others, and show how Afrezza should not be marketed.  Now don't get me wrong, Sanofi stabbed us in the back.  No question about it.  But, there are some tangible benefits that did result from the poor partnership that Sanofi cannot take back thankfully.

The next question, would regional partners have been a better choice?  Perhaps, as this would have allowed Mnkd to shift gears on marketing.  I just don't think the same kind of lessons would have been learned nor would have the same amount of funding been given to Mnkd up front.  

Another question I have been thinking about ... the cash runway.  This obviously is the main concern of most folks on this board.  I wish I had firm knowledge that we have a lock on enough cash for at least a year or more of operations.  I don't.  And there lies the biggest risk.

So so what happens from here.  I believe that Mnkd finds enough funding to go for another year.  During that year, Mnkd manages to find traction for Afrezza.  At this point, the uptick in script count doesn't really need to be that much for the market to take notice.  With the traction in Afrezza script numbers comes added interest in TS from the market and potential TS partners.  This slow up swing allows the share price to stabilize and makes it easier to raise cash until that glorious day of profitability.  

I might just be dreaming, but I do believe that Mnkd has a solid chance still.  

[Chris-C]

Hi CentralCoastInvestor

I too am convinced that Sanofi pivoted soon after Olivier Brandicourt took over as CEO. It didn't help that Brandicourt arrived with tainted perspectives from his Pfizer/Exubera experience. That coincidence was very unfortunate for Afrezza and the partnership with Mannkind. It was also an unfortunate matter of timing that SNY was about to launch other drugs more central to their bread and butter revenue stream. I'm convinced that their strategic position put Brandicourt under pressure from the board to turn the revenue picture around quickly. Even if Brandicourt had been enthusiastic about inhaled prandial insulin, it's possible he felt his hands were tied, especially when early marketing efforts failed to incorporate a strategy that better addressed the barriers associated with formulary adoption and pricing. Mannkind had voice but no real power (and little experience) to influence the development of a more suitable marketing strategy.

Since Sanofi has provided no details when they claim a 60% drop out rate for Afrezza, one can easily imagine that the principal reasons for this result (if it is, in fact, true) involved the effort and time required for early users to master personal dosing, along with the significant out of pocket expense many were faced with if they continued. The good news is that with a proper strategy, both barriers can be addressed. But that strategy will require time and money- two resources in very short supply at MNKD headquarters. My mistake was believing the narrative that Sanofi had intentionally planned a controlled launch to establish a firm understanding of how to proceed before going all out when, in fact, their "controlled launch" behavior was a signal that they had already pulled the plug on the partnership.

The fact that Sanofi waited to notify Mannkind once that decision was taken rather than to approach Mannkind and negotiate an early termination date does not incline me to think they will feel much obligation to provide some parting cash before April. It is also possible, as some have said, that from the beginning, SNY had a conflict of interest, knowing that Afrezza sales could potential jeopardize some of their other revenues. The lesson Mannkind learned the hard way is this: Never assume the entity across the table is partnering with honest intentions for a win-win outcome.

I hope your half full scenario is accurate. It's about as good as we can hope for, I'm afraid. In my list of hoped for outcomes, a buyout is at the top. Even if the sale price means I lose half the value of my investment. Lessons learned...perfect storms do happen; and they lead to the greatest destruction when those at the helm are inexperienced.
Regards,
Chris-C

[mnholdem]

There are approximately 300,000 TRx written for prandial insulin each week. The "tell" that Sanofi intentionally limited sales of Afrezza is that TRx held steady at approximately 500 per week, or less than 2/10ths of 1% of the prandial space in the U.S. alone.

I recently read the unsubstantiated report that Sanofi early limited sales was targeted to approximately 100 physicians, intended for data-gathering purposes, and that little was done to expand that base after the Sanofi BoD fired Veirbacher and Mr. Brandecourt was given the CEO reins.

---

We have little information of how MannKind plans to improve 3rd Party Payer coverage (PBM / insurance / others) other than MannKind's CEO stating that they will definitely be changing the pricing policy used by Sanofi. Regardless of how long it takes to negotiate coverage that is en par with per unit RAA insulin costs, anybody who believes that the needle will remain stuck at 500 scripts per week does not have a logical argument.

Even with low operating cash, an eMarketed D-T-C campaign will increase sales by 1000's of weekly scripts. 1000's of scripts is not enough - MannKind needs script counts in the 10,000's - but the revenue will result in 100% profit with no more 35/65 split after April 5, the date that Sanofi confirmed at their earnings call.

500 scripts per week is nothing. Nothing... that is exactly what Sanofi's 2015 sales & marketing effort amounted to, regardless of what they allegedly say to a WSJ reporter.

As coverage improves, sales will take off. 

[matt]

Feb 13, 2016 23:59:37 GMT -5 centralcoastinvestor said:

The next question, would regional partners have been a better choice?  Perhaps, as this would have allowed Mnkd to shift gears on marketing.  I just don't think the same kind of lessons would have been learned nor would have the same amount of funding been given to Mnkd up front.  

Regional partnerships have largely gone the way of the dodo bird. The cost and regulatory intensity required to launch a product successfully have all but eliminated regional pharma companies, most of whom got swallowed up and consolidated into the larger ones.  Even in huge markets, like Germany, they are down to just one big pharma in the guise of Bayer, but how many remember Schering, Ciba Geigy, Hoescht, Adventis, Hoffman-LaRoche, Nyomed, and several others.  The ones that are left are mostly family firms now in the 3rd or 4th generation of management, especially in Italy, Germany, and Spain, and the majority of those do not have the marketing muscle needed for a drug like Afrezza.  The real problem is that most of the big firms want a global deal or no deal at all.  Even Japan, which used to be an exception, we have seen a winnowing of Japanese only pharmaceuticals as the keiretsu have had to focus on fewer industries. 

And those big upfront payments we sometimes see are for global exclusivity on a novel and interesting drug, not for anything else.  If you think the same amount of funding would not have been forthcoming without the likes of Sanofi, you are correct.    The only thing Afrezza could have done would be to tie termination provision in the contract to a change in control at Sanofi but given the relative strengths of the companies I am not sure MNKD could have bullied SNY into signing such an agreement.

I agree that cash runway is the big risk.  The financial markets are tough at the moment and MNKD has the kind of profile everyone loves to hate at the moment.  Money is almost always available to a NASDAQ listed stock, but the terms are going to be brutal and will hurt . . . a lot.  However, a punitive financing is still better than the alternative and I hope Matt proceeds to rip of the Band-Aid quickly; it will hurt less if he does it sooner rather than later.

[prvs]

I have WAY too much invested MNKD, losing half would be devastating. A $5 BO is the minimum amount to save my portfolio (get it all back plus a small profit). So I'm not one of the investors calling for a BO at this time. On the other hand a $20 BO would ensure a very comfortable retirement and would be welcome, but it's not likely right now. I anticipate the script numbers rising significantly after 4/5. After all, if SNY did almost nothing to promote Afrezza, even a moderate promotional effort on MNKD's part should result in a substantial jump in scripts.

[suebeeee1]

That 60% of prescriptions were not refilled is no big surprise to someone who has fought for coverage on this drug. Look at the coverage rates on the thread that is updated weekly. We have been stuck at coverage for individual people at LESS than 40% since Afrezza emerged. When a person has to spend $350 on a drug every month when an injectable has a $10 co-payment, there is bound to be drop outs. That there have only been 60% means that there are people (like we used to be) that paid for this drug out of pocket. Imagine when there is better coverage?

Clearly, I'm still looking at this as the glass half full. We just need to have enough cash to allow this process to proceed. Let's hope there is some sort of settlement from Sanofi that gives us a year!

[kc]

Feb 14, 2016 10:35:29 GMT -5 prvs said:

I have WAY too much invested MNKD, losing half would be devastating. A $5 BO is the minimum amount to save my portfolio (get it all back plus a small profit). So I'm not one of the investors calling for a BO at this time. On the other hand a $20 BO would ensure a very comfortable retirement and would be welcome, but it's not likely right now. I anticipate the script numbers rising significantly after 4/5. After all, if SNY did almost nothing to promote Afrezza, even a moderate promotional effort on MNKD's part should result in a substantial jump in scripts.

MannKind is too small and battered to go it alone the company needs to be sold. While I don't like that, it is the best and only way to make sure that Afrezza stays in the market place and gets seen by the diabetic community who want's and needs a better insulin product.   There is no doubt that eventually Afrezza will be the Gold Standard of Diabetic treatment.  It  will be there for the T1D, T2D and for Pre-Diabetic Mealtime treatment for folks who are borderline depending on what they eat.  Can you imagine an easy to use Insulin product that helps to give the pancreas a break and perhaps revitalizes its function.   The product needs the right Pharma to find out exactly what Afrezza can do to make life better. 

 I personally believe that if they company was publically up for sale that a bidding war would occur. The low side would be in your $5.00 BO range but the high side in the $20 + range.

  It takes all Pharma's over 10 years to bring a product to market and FDA approval. We have that so the new Pharma would be able to move forward with their sales and marketing plan. We need Cash and that will not come with out dilution or new ownership.  None of us want more dilution as we will never see that money come back for year or more.   This company needs Cash, New Leadership and a new beginning as a division of a company like a Teva or some other Pharma that is not conflicted with their insulin product.  

We got a 12 month test drive from Sanofi.   This is a big sales tool for the next Pharma as they can see how the product really worked and the feedback from real users who got the benefit of Afrezza.

Since we are still attached to Sanofi until April 5th, we should not expect to learn much until the final day.  MannKind can't show Sanofi what cards they have in their hands as they are still sharing information.   MannKind needs to work hard on their plans so that they get off  to a good start after the divorce date becomes final.  Hopefully they will have a solid plan that becomes evident and in place before June's ADA event as that would be a great  day to kick off MannKind 2.0 to the Doctor community.

For the record I need to be in the mid $6.00 to break even.   I want to see that $20.00 deal but by the same token would be very happy to come out whole and with a great lesson in that small Bio's are very tough to make a buck.   The lesson is a good one and I am hopeful that its doesn't end with a big loss for me but if it does than it was my fault for acting with my heart that MannKind was a special company working hard to make life easier for Diabetics.    

[mindovermatter]

Feb 14, 2016 11:13:39 GMT -5 suebeeee1 said:

That 60% of prescriptions were not refilled is no big surprise to someone who has fought for coverage on this drug. Look at the coverage rates on the thread that is updated weekly. We have been stuck at coverage for individual people at LESS than 40% since Afrezza emerged. When a person has to spend $350 on a drug every month when an injectable has a $10 co-payment, there is bound to be drop outs. That there have only been 60% means that there are people (like we used to be) that paid for this drug out of pocket. Imagine when there is better coverage?

Clearly, I'm still looking at this as the glass half full. We just need to have enough cash to allow this process to proceed. Let's hope there is some sort of settlement from Sanofi that gives us a year!

Good point about insurance issues and getting refills. The one thing that Sanofi wouldn't get into nor the WSJ dared to investigate is what caused the 35% refill rate to be so low. Mannkind would be derelict in their managerial positions if they didn't drill down into the main reasons why patients didn't renew their prescriptions. I am betting they do and why Matt is spoke confidently that they can fix the problem. My guess is that the issue wasn't that people didn't like Afrezza (not counting those who didn't properly administer the drug) but all the hurdles just to keep on it. The issue is whether or not Mannkind as the ability to fix those problems themselves. 

[kc]

Feb 14, 2016 13:43:23 GMT -5 mindovermatter said:

Feb 14, 2016 11:13:39 GMT -5 suebeeee1 said:

That 60% of prescriptions were not refilled is no big surprise to someone who has fought for coverage on this drug. Look at the coverage rates on the thread that is updated weekly. We have been stuck at coverage for individual people at LESS than 40% since Afrezza emerged. When a person has to spend $350 on a drug every month when an injectable has a $10 co-payment, there is bound to be drop outs. That there have only been 60% means that there are people (like we used to be) that paid for this drug out of pocket. Imagine when there is better coverage?

Clearly, I'm still looking at this as the glass half full. We just need to have enough cash to allow this process to proceed. Let's hope there is some sort of settlement from Sanofi that gives us a year!

Good point about insurance issues and getting refills. The one thing that Sanofi wouldn't get into nor the WSJ dared to investigate is what caused the 35% refill rate to be so low. Mannkind would be derelict in their managerial positions if they didn't drill down into the main reasons why patients didn't renew their prescriptions. I am betting they do and why Matt is spoke confidently that they can fix the problem. My guess is that the issue wasn't that people didn't like Afrezza (not counting those who didn't properly administer the drug) but all the hurdles just to keep on it. The issue is whether or not Mannkind as the ability to fix those problems themselves. 

This is why The user needs a first time 30 Day free sample supply of Afrezza so they get a very extensive test of how the drug is working for them.  in addition they need to have a 24 hours hotline that is staffed with trained personal who can hold the patients hand.   That hotline needs to be answered when the user calls and not just an answering service taking numbers like Sanofi had.

Since we don't have any real product sales we need  to give the user enough free sample  product to build loyalty to using Afrezza.  Sanofi with the 7 day trial kit was fooling nobody as that was not enough time for anybody to get a feeling if the product was good for the user.   Again it was a set up for failure.  

[dreamboatcruise]

Feb 14, 2016 10:06:15 GMT -5 mnholdem said:

We have little information of how MannKind plans to improve 3rd Party Payer coverage (PBM / insurance / others) other than MannKind's CEO stating that they will definitely be changing the pricing policy used by Sanofi. Regardless of how long it takes to negotiate coverage that is en par with per unit RAA insulin costs, anybody who believes that the needle will remain stuck at 500 scripts per week does not have a logical argument.

Even with low operating cash, an eMarketed D-T-C campaign will increase sales by 1000's of weekly scripts. 1000's of scripts is not enough - MannKind needs script counts in the 10,000's - but the revenue will result in 100% profit with no more 35/65 split after April 5, the date that Sanofi confirmed at their earnings call.

Getting payers on board is the significant barrier.  The script numbers, even with DTC, are going to be limited by the number of doctors actively prescribing and I believe that doesn't improve significantly until Afrezza is covered by more plans.  Even if Afrezza were priced on par with SQ RAA, few patients can afford that if not covered by insurance.  So the big question is whether price reduction alone really is key to getting better formulary placement.  I suspect formulary placement isn't going to be easy even at pricing parity until there is something MNKD can point to in support of clinically superior outcomes.  I wish they already had the rights to be talking to the PBMs.  It kinda baffles me that they couldn't at least talk, or even if the agreement would preclude them from doing so they would ask/demand that SNY allow them.

[dreamboatcruise]

Feb 14, 2016 10:09:05 GMT -5 matt said:

I agree that cash runway is the big risk.  The financial markets are tough at the moment and MNKD has the kind of profile everyone loves to hate at the moment.  Money is almost always available to a NASDAQ listed stock, but the terms are going to be brutal and will hurt . . . a lot.  However, a punitive financing is still better than the alternative and I hope Matt proceeds to rip of the Band-Aid quickly; it will hurt less if he does it sooner rather than later.

That is not what I want to hear... but you may be right.

[kc]

That is why the best thing is to sell the company. We can't have a BAND-AID approach. We are dying a slow death if the company is not sold. We all want the company to survive in some fashion. Afrezza will go on to be a winner but it will take deep pockets to get the marketing and advertising that it needs to get seen by the diabetic market. Without money nothing can happen that will save the retail shareholder in MannKind. Yes I am selfish in that I want to get my invested capital back. If the company goes bankrupt then I have a big loser that will never be regained. I can accept a buyout that gets me close to my invested dollars.

MannKind will never have the cash necessary to get the company health without very serious dilution that will wipeout the retail investor.

[slugworth008]

Feb 14, 2016 10:06:15 GMT -5 mnholdem said:

There are approximately 300,000 TRx written for prandial insulin each week. The "tell" that Sanofi intentionally limited sales of Afrezza is that TRx held steady at approximately 500 per week, or less than 2/10ths of 1% of the prandial space in the U.S. alone.

I recently read the unsubstantiated report that Sanofi early limited sales was targeted to approximately 100 physicians, intended for data-gathering purposes, and that little was done to expand that base after the Sanofi BoD fired Veirbacher and Mr. Brandecourt was given the CEO reins.

---

We have little information of how MannKind plans to improve 3rd Party Payer coverage (PBM / insurance / others) other than MannKind's CEO stating that they will definitely be changing the pricing policy used by Sanofi. Regardless of how long it takes to negotiate coverage that is en par with per unit RAA insulin costs, anybody who believes that the needle will remain stuck at 500 scripts per week does not have a logical argument.

Even with low operating cash, an eMarketed D-T-C campaign will increase sales by 1000's of weekly scripts. 1000's of scripts is not enough - MannKind needs script counts in the 10,000's - but the revenue will result in 100% profit with no more 35/65 split after April 5, the date that Sanofi confirmed at their earnings call.

500 scripts per week is nothing. Nothing... that is exactly what Sanofi's 2015 sales & marketing effort amounted to, regardless of what they allegedly say to a WSJ reporter.

As coverage improves, sales will take off. 

 I completely agree that sales will improve dramatically with an e-marketing campaign and pricing on par with RAA insulins. Cost and awareness will do wonders for Afrezza. I remain optimistic and underwater.

[dreamboatcruise]

Feb 14, 2016 18:03:56 GMT -5 slugworth008 said:

Feb 14, 2016 10:06:15 GMT -5 mnholdem said:

 I completely agree that sales will improve dramatically with an e-marketing campaign and pricing on par with RAA insulins. Cost and awareness will do wonders for Afrezza. I remain optimistic and underwater.

Are you thinking that patients themselves will be willing/able to pay out of pocket with a cost reduction to parity with SQ RAA?  I don't think there are large numbers of people that can and would pay a significant premium for Afrezza if they could get Novolog or Humalog at the preferred co-pay tier.

I'm not expecting dramatic growth in scripts as I believe it will depend on better formulary coverage and increased acceptance within the medical community, and I'm skeptical there is a quick fix for either of those.

I remain optimistic that Afrezza will be successful, but fearful of what will need to be done to get us there and what it will mean for my MNKD shares.

[dreamboatcruise]

Feb 14, 2016 17:59:25 GMT -5 kc said:

That is why the best thing is to sell the company. We can't have a BAND-AID approach. We are dying a slow death if the company is not sold. We all want the company to survive in some fashion. Afrezza will go on to be a winner but it will take deep pockets to get the marketing and advertising that it needs to get seen by the diabetic market. Without money nothing can happen that will save the retail shareholder in MannKind. Yes I am selfish in that I want to get my invested capital back. If the company goes bankrupt then I have a big loser that will never be regained. I can accept a buyout that gets me close to my invested dollars.

MannKind will never have the cash necessary to get the company health without very serious dilution that will wipeout the retail investor.

I have a high enough cost basis that I can't imagine getting my investment back under an acquisition scenario right now.  Do you believe there is one or more companies that would offer significantly more than the market cap to acquire MNKD?  If there are, it would seem smart institutional investors would know this and would make it possible to do a secondary that wouldn't totally wipe out current shareholders.  I guess under either of these scenarios I'm thinking I'll likely be taking a big loss on MNKD.