Post by mannmade on Aug 29, 2016 17:28:26 GMT -5
As I mentioned in my post entitled "Is this the Shorts Last Hurrah?" We currently seem to be seeing what I hope is the short's final assault with support from their reserves/underlings...
Editor's Picks
MannKind: The Curtain Has Been Drawn And The Microphone Is In Place!
Aug. 29, 2016 3:04 PM ET|57 comments | About: MannKind Corporation (MNKD), Includes: SNY
Looking For Diogenes Looking For DiogenesFollow(525 followers)
Biotech, mid-cap, research analyst, dividend investing
Send Message
Summary
I will update the current issues facing MannKind.
I will address the ever changing story line being shared with investors.
I have provided a direct comparison for Sanofi's vs. MannKind's marketing efforts with Afrezza.
The Curtain Has Been Closed and the Microphone is Ready for The Fat Lady Singing the Dirge!
The Flip of all Flops!
Long before MannKind (NASDAQ:MNKD) obtained FDA approval for Afrezza in 2014, they already knew there would be the issue of third party payor willingness for giving them the needed tier assignment that would negate the out-of-pocket expense for the patients. If one read their public documents, for years they mentioned they were working on the issue and that insurance companies were showing their willingness to give them the coverage they needed to resolve this issue. MannKind knew this problem existed because Pfizer (NYSE:PFE) had experienced, with Exubera, the same issue of insurance companies refusing to cover their product. Not only in the US, but in EU countries where they refused to provide reimbursed at any level for Exubera.
With patient insurance coverage being critical, and with the long-term assurances that MannKind and Sanofi (NYSE:SNY) were on top of the situation, where does this issue stand after the FDA approved Afrezza more than two years ago? For the answer, we can see MannKind's CEO being quoted in the August issue of the Santa Clarita Valley Business Journal (By using the following link, click on the August edition, scroll to Page19-Section Titled-Overcoming Problems):
"Another issue is that most health insurers in the United States have Afrezza in a Tier 3 reimbursement category. That generally means that co-payments are higher than with other medications. There is no disadvantage to the patient being in Tier 3, he says."
For approximately 4 years the management of MannKind told investors that it was important that they obtain the more lucrative tier placement for Afrezza. Now in August, 2016, the CEO tells you that what they had been saying and doing for all these years was no longer an issue, and obviously wouldn't impact their goal of making Afrezza a booming success story.
Truly amazing flip-flop on this issue, especially when you consider the same CEO has changed his story, apparently because he finally realizes that insurance companies have refused to give a better tier coverage for Afrezza. And you can take it to the bank, this issue is why MannKind and Sanofi made no effort to submit Afrezza for approval in the EU countries. So how can any investor get to the bottom of this issue--flipping from needing better insurance coverage to now suddenly having the CEO telling you there is no disadvantage to the patient for Afrezza being in Tier 3? For the answer to this nagging conundrum of first one answer and now spinning a story about there never being an issue, where can one find a definitive answer for this issue? Let's look at what the CEO has signed off on personally with the SEC filed 2015 Annual report that was issued only recently.
"In the United States and elsewhere, sales of prescription pharmaceuticals still depend in large part on the availability of coverage and adequate reimbursement to the consumer from third-party payors, such as government and private insurance plans. Third-party payors are increasingly challenging the prices charged for medical products and services. The market for AFREZZA and our product candidates for which we may receive regulatory approval will depend significantly on access to third-party payors' drug formularies, or lists of medications for which third-party payors provide coverage and reimbursement. Also, third-party payors may refuse to include a particular branded drug in their formularies or otherwise restrict patient access to a branded drug in their formularies or otherwise restrict patient access to a branded drug when a less costly generic equivalent or another alternative is available. --This process could delay the market acceptance of any product and could have a negative effect on our future revenues and operating results."
So let's get to the crux of what the CEO is telling you, if you would bother reading their legally binding SEC documents where they have to come clean with the reality of the situation:
"Patients will be unlikely to use our products unless coverage is provided and reimbursement is adequate to cover a significant portion of the cost of our products."
Investors in MannKind's stock can't have it both ways! Either the August Santa Clarita Business Journal interview or the legally binding SEC annual report is truthful. But both of them can't be truthful because they are bifurcated by factual elements that are as wide and deep as the Pacific Ocean. And now, 82 weeks, and soon to be two years of marketing results, anyone with a degree of effort and looking at the ability for MannKind retaining a patient once they have been prescribed Afrezza, they know which one is the TRUTH.
Where We Stand as We Enter Month Nine of MannKind's Control of Their Destiny:
The ball is totally in MannKind's court and they can't put the ball through the net! It has been my contention the best way to compare their results against what Sanofi was able to achieve, is by comparing the results that followed the respective ADA conference in 2015, and now, 2016. In 2015, Sanofi had the opportunity for marketing exposure with the key medical professionals that could go back and prescribe Afrezza to their patients. The same things apply for 2016, where it was MannKind marketing effort that had center stage with the same medical professionals. In reality, the opportunities were not the same, because in 2015, Sanofi was starting from ground zero-no prior knowledge for the attending medical professionals. Also, Sanofi didn't have the benefit of introducing the doctors to any new clinical data, whereas, MannKind had several sessions where the much ballyhooed new data was on display. How soon those touting the stock seem to forget that it was this new clinical data that was going to make the difference. Only now they are reverting back to their long term didactic need for just needing more time to train the doctors!
We will soon be entering the ninth month that MannKind knew they would be taking over the marketing of Afrezza. We also know that during the Sanofi reign they had brought on at least a few prescribing physicians. Must I remind MannKind investors that the clamor has been about the decline in new prescriptions in 2016 was supposedly due to uncertainty about the availability of Afrezza. So logic would have been for going back to these friendly initial doctors prescribing Afrezza and give them the assurance that the product would be available. A simple letter, envelope and a $0.46 stamp-Marketing 101. Considering that MannKind is a sinking ship with limited funds, one would hope that a least they would attempt to maintain the few doctors that had previously prescribed Afrezza.
It's All in the Numbers:
So with the discernible advantage that MannKind had as their starting point, let's look at the comparable results where we can compare MannKind against Sanofi's efforts.
ADA Conference: 2015 (6/5/2015)
ADA Conference: 2016 (6/10/2016)
NRx
Refills
TRx
NRx
Refills
TRx
Week 1
316
118
434
93
164
257
Week 2
330
93
423
88
162
250
Week 3
386
130
516
107
159
266
Week 4
329
136
465
84
132
216
Week 5
364
111
475
99
136
235
Week 6
339
148
487
115
171
286
Week 7
319
166
485
116
152
268
Week 8
329
154
483
117
159
276
Week 9
315
139
454
135
120
255
Week 10
273
184
457
124
128
253
The first things one can note are the NRxs results from 2015, when compared to 2016. Again! Simple logic would have been for MannKind making contact with the previous prescribers--unless they knew that going back to them would be a futile effort due to their current opinion about Afrezza. The reality being, if they have been calling on these prior prescribers, the results have been a disaster. Looking back to the 2015 ADA and the ensuing ten weeks we saw 3300 new prescriptions having been issued. However, looking at the comparable results for MannKind's efforts in 2016, we see a meager 1078 new prescriptions being written. This translates to an enormous 67.7% drop achieved by MannKind's sales team. Based on 65 sales representative, this reveals that on average each representative has sold 16.5 new prescriptions over the last 10 weeks. Breaking it down further, based on ten weeks of marketing, each sales team member sold 1.65 new prescriptions per week. However, the most revealing number is the Week 10, 2015 refill number (184) when compared to Week 10, 2016(184), we see that refills have dropped by 30%. Based on total new prescriptions written for more than 80 weeks, instead of refills on a weekly basis being in the thousands, we see miserable refill data continuing their precipitous drop. So just how long does one think a sales team can be paid when they are generating on average a meager 1.65 new weekly prescriptions?
I'm sure those touting MannKind's stock will ignore the prescription numbers and the reality. It was last year where they contended that prescription numbers didn't count, until they switched the story where it was simply Sanofi's fault in the results being achieved. So why wouldn't the same blame apply to MannKind where it's obvious their efforts have been abysmal. Remember, the excuse was doctors not knowing that Afrezza would remain available, so why has the sales team, in what has been more than two months, not stemmed the decline in refills? In just the interim nine weeks since the 2016 ADA, MannKind efforts has generated another decline of 25% in refills. So back to my beginning point about the CEO telling investors that better tier coverage by insurers didn't present a problem with their marketing efforts for Afrezza.
The Ongoing Need for New Operating Funds:
Who would want to invest their money in a company where the CEO doesn't understand the implications for how their product is going to be funded. If you don't think this was a known issue, then why did the same group of executive's dump $21 million dollars of their stock when it was trading above $8.00 a share.
In November, 2015, desperate for money, MannKind forced on Israeli investors a stock offering where they refused to accept the original number of shares being offered. The end result was MannKind diluted shareholder's value by 13,852,430 shares at $2.62 per share. Then only a few months later, May, 2016, MannKind once again needing operating funds, they diluted shareholder's value by another 30% where they sold 48,543,692 shares at $1.03 per share. The desperation only grows; in the last two offerings the new shares had been reduced from $2.61 to $1.03, a staggering 60% discount in per share valuation. With the closing share price of August 26, we see the stock trading at $0.79 per share, so guess what size the next dilution will required, while sales efforts are bringing in 1.6 new prescriptions by each sales team member, per week.
The Elephant in the Room:
When the Sanofi deal was first announced, I attempted to warn investors that the details of this arrangement had hidden items of concern. This was validated when MannKind announced that all upfront and milestone payments would be carried on their books as a liability. Plus, never forget that MannKind keeps dangling the "potential" of them borrowing more money from the Mann loan agreement. However, when one bothers reading the fine print related to the details, they keep using the word, MAY, when they reference other sources of operating funds. The following is taken directly from the SEC filed documents:
"Additional funding sources that are, or in certain circumstances MAY be, available to the Company, including approximately $30.1 million principal amount of available borrowings under the Mann Group Loan Arrangement."
Notice the key words---"may be"!
Investors need to understand, with companies like MannKind, where even the CFO told you very clearly that it was awkward for him talking about the Sanofi deal due to his lack of understanding the details, you had better read the nuances of their full SEC filed documentation. If you had done so, in the case of the "may be" limitation on them borrowing more from the Mann Group Loan Arrangement, you would understand why they haven't drawn down any of these potential funds since the Sanofi deal was announced. A simple read of the "full-details", you would know why you are seeing the desperate massive dilutions with selling more stock being the solution for their dire cash position.
After reading the above "may be" clause, now read the details of the overriding Sanofi Loan Facility where Sanofi holds first rights to the major hard assets of MannKind. There you will find the following iron-clad provision that Sanofi holds over the head of MannKind's management and their funding efforts. And you can't say that I didn't warn you about these issues!
"The Sanofi Loan facility includes customary representations, warranties and covenants by the Company, including restrictions on its ability to incur additional indebtedness, grants certain liens and make certain changes to its organizational documents."
In simple laymen terms, Sanofi prevents MannKind from incurring any additional indebtedness as they further restrict them from issuing liens required from any potential lender-including the Mann Group Loan Arrangement. This is why the only recourse is for MannKind generating operating funds is by issuing more and more stock. So with the stock trading at the current level, and what the previous price was where they got enough month to last one quarter, ask yourself how many shares they will have to issue now to get the same level of funding. Only now, maybe you will understand why the stock is trading at $0.79 a share, and will be soon going lower.
It is my sincere hope and wish that Afrezza remains available for those patients that need options for treating their medical condition.
Good luck with your future investing decisions!
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
Editor's Picks
MannKind: The Curtain Has Been Drawn And The Microphone Is In Place!
Aug. 29, 2016 3:04 PM ET|57 comments | About: MannKind Corporation (MNKD), Includes: SNY
Looking For Diogenes Looking For DiogenesFollow(525 followers)
Biotech, mid-cap, research analyst, dividend investing
Send Message
Summary
I will update the current issues facing MannKind.
I will address the ever changing story line being shared with investors.
I have provided a direct comparison for Sanofi's vs. MannKind's marketing efforts with Afrezza.
The Curtain Has Been Closed and the Microphone is Ready for The Fat Lady Singing the Dirge!
The Flip of all Flops!
Long before MannKind (NASDAQ:MNKD) obtained FDA approval for Afrezza in 2014, they already knew there would be the issue of third party payor willingness for giving them the needed tier assignment that would negate the out-of-pocket expense for the patients. If one read their public documents, for years they mentioned they were working on the issue and that insurance companies were showing their willingness to give them the coverage they needed to resolve this issue. MannKind knew this problem existed because Pfizer (NYSE:PFE) had experienced, with Exubera, the same issue of insurance companies refusing to cover their product. Not only in the US, but in EU countries where they refused to provide reimbursed at any level for Exubera.
With patient insurance coverage being critical, and with the long-term assurances that MannKind and Sanofi (NYSE:SNY) were on top of the situation, where does this issue stand after the FDA approved Afrezza more than two years ago? For the answer, we can see MannKind's CEO being quoted in the August issue of the Santa Clarita Valley Business Journal (By using the following link, click on the August edition, scroll to Page19-Section Titled-Overcoming Problems):
"Another issue is that most health insurers in the United States have Afrezza in a Tier 3 reimbursement category. That generally means that co-payments are higher than with other medications. There is no disadvantage to the patient being in Tier 3, he says."
For approximately 4 years the management of MannKind told investors that it was important that they obtain the more lucrative tier placement for Afrezza. Now in August, 2016, the CEO tells you that what they had been saying and doing for all these years was no longer an issue, and obviously wouldn't impact their goal of making Afrezza a booming success story.
Truly amazing flip-flop on this issue, especially when you consider the same CEO has changed his story, apparently because he finally realizes that insurance companies have refused to give a better tier coverage for Afrezza. And you can take it to the bank, this issue is why MannKind and Sanofi made no effort to submit Afrezza for approval in the EU countries. So how can any investor get to the bottom of this issue--flipping from needing better insurance coverage to now suddenly having the CEO telling you there is no disadvantage to the patient for Afrezza being in Tier 3? For the answer to this nagging conundrum of first one answer and now spinning a story about there never being an issue, where can one find a definitive answer for this issue? Let's look at what the CEO has signed off on personally with the SEC filed 2015 Annual report that was issued only recently.
"In the United States and elsewhere, sales of prescription pharmaceuticals still depend in large part on the availability of coverage and adequate reimbursement to the consumer from third-party payors, such as government and private insurance plans. Third-party payors are increasingly challenging the prices charged for medical products and services. The market for AFREZZA and our product candidates for which we may receive regulatory approval will depend significantly on access to third-party payors' drug formularies, or lists of medications for which third-party payors provide coverage and reimbursement. Also, third-party payors may refuse to include a particular branded drug in their formularies or otherwise restrict patient access to a branded drug in their formularies or otherwise restrict patient access to a branded drug when a less costly generic equivalent or another alternative is available. --This process could delay the market acceptance of any product and could have a negative effect on our future revenues and operating results."
So let's get to the crux of what the CEO is telling you, if you would bother reading their legally binding SEC documents where they have to come clean with the reality of the situation:
"Patients will be unlikely to use our products unless coverage is provided and reimbursement is adequate to cover a significant portion of the cost of our products."
Investors in MannKind's stock can't have it both ways! Either the August Santa Clarita Business Journal interview or the legally binding SEC annual report is truthful. But both of them can't be truthful because they are bifurcated by factual elements that are as wide and deep as the Pacific Ocean. And now, 82 weeks, and soon to be two years of marketing results, anyone with a degree of effort and looking at the ability for MannKind retaining a patient once they have been prescribed Afrezza, they know which one is the TRUTH.
Where We Stand as We Enter Month Nine of MannKind's Control of Their Destiny:
The ball is totally in MannKind's court and they can't put the ball through the net! It has been my contention the best way to compare their results against what Sanofi was able to achieve, is by comparing the results that followed the respective ADA conference in 2015, and now, 2016. In 2015, Sanofi had the opportunity for marketing exposure with the key medical professionals that could go back and prescribe Afrezza to their patients. The same things apply for 2016, where it was MannKind marketing effort that had center stage with the same medical professionals. In reality, the opportunities were not the same, because in 2015, Sanofi was starting from ground zero-no prior knowledge for the attending medical professionals. Also, Sanofi didn't have the benefit of introducing the doctors to any new clinical data, whereas, MannKind had several sessions where the much ballyhooed new data was on display. How soon those touting the stock seem to forget that it was this new clinical data that was going to make the difference. Only now they are reverting back to their long term didactic need for just needing more time to train the doctors!
We will soon be entering the ninth month that MannKind knew they would be taking over the marketing of Afrezza. We also know that during the Sanofi reign they had brought on at least a few prescribing physicians. Must I remind MannKind investors that the clamor has been about the decline in new prescriptions in 2016 was supposedly due to uncertainty about the availability of Afrezza. So logic would have been for going back to these friendly initial doctors prescribing Afrezza and give them the assurance that the product would be available. A simple letter, envelope and a $0.46 stamp-Marketing 101. Considering that MannKind is a sinking ship with limited funds, one would hope that a least they would attempt to maintain the few doctors that had previously prescribed Afrezza.
It's All in the Numbers:
So with the discernible advantage that MannKind had as their starting point, let's look at the comparable results where we can compare MannKind against Sanofi's efforts.
ADA Conference: 2015 (6/5/2015)
ADA Conference: 2016 (6/10/2016)
NRx
Refills
TRx
NRx
Refills
TRx
Week 1
316
118
434
93
164
257
Week 2
330
93
423
88
162
250
Week 3
386
130
516
107
159
266
Week 4
329
136
465
84
132
216
Week 5
364
111
475
99
136
235
Week 6
339
148
487
115
171
286
Week 7
319
166
485
116
152
268
Week 8
329
154
483
117
159
276
Week 9
315
139
454
135
120
255
Week 10
273
184
457
124
128
253
The first things one can note are the NRxs results from 2015, when compared to 2016. Again! Simple logic would have been for MannKind making contact with the previous prescribers--unless they knew that going back to them would be a futile effort due to their current opinion about Afrezza. The reality being, if they have been calling on these prior prescribers, the results have been a disaster. Looking back to the 2015 ADA and the ensuing ten weeks we saw 3300 new prescriptions having been issued. However, looking at the comparable results for MannKind's efforts in 2016, we see a meager 1078 new prescriptions being written. This translates to an enormous 67.7% drop achieved by MannKind's sales team. Based on 65 sales representative, this reveals that on average each representative has sold 16.5 new prescriptions over the last 10 weeks. Breaking it down further, based on ten weeks of marketing, each sales team member sold 1.65 new prescriptions per week. However, the most revealing number is the Week 10, 2015 refill number (184) when compared to Week 10, 2016(184), we see that refills have dropped by 30%. Based on total new prescriptions written for more than 80 weeks, instead of refills on a weekly basis being in the thousands, we see miserable refill data continuing their precipitous drop. So just how long does one think a sales team can be paid when they are generating on average a meager 1.65 new weekly prescriptions?
I'm sure those touting MannKind's stock will ignore the prescription numbers and the reality. It was last year where they contended that prescription numbers didn't count, until they switched the story where it was simply Sanofi's fault in the results being achieved. So why wouldn't the same blame apply to MannKind where it's obvious their efforts have been abysmal. Remember, the excuse was doctors not knowing that Afrezza would remain available, so why has the sales team, in what has been more than two months, not stemmed the decline in refills? In just the interim nine weeks since the 2016 ADA, MannKind efforts has generated another decline of 25% in refills. So back to my beginning point about the CEO telling investors that better tier coverage by insurers didn't present a problem with their marketing efforts for Afrezza.
The Ongoing Need for New Operating Funds:
Who would want to invest their money in a company where the CEO doesn't understand the implications for how their product is going to be funded. If you don't think this was a known issue, then why did the same group of executive's dump $21 million dollars of their stock when it was trading above $8.00 a share.
In November, 2015, desperate for money, MannKind forced on Israeli investors a stock offering where they refused to accept the original number of shares being offered. The end result was MannKind diluted shareholder's value by 13,852,430 shares at $2.62 per share. Then only a few months later, May, 2016, MannKind once again needing operating funds, they diluted shareholder's value by another 30% where they sold 48,543,692 shares at $1.03 per share. The desperation only grows; in the last two offerings the new shares had been reduced from $2.61 to $1.03, a staggering 60% discount in per share valuation. With the closing share price of August 26, we see the stock trading at $0.79 per share, so guess what size the next dilution will required, while sales efforts are bringing in 1.6 new prescriptions by each sales team member, per week.
The Elephant in the Room:
When the Sanofi deal was first announced, I attempted to warn investors that the details of this arrangement had hidden items of concern. This was validated when MannKind announced that all upfront and milestone payments would be carried on their books as a liability. Plus, never forget that MannKind keeps dangling the "potential" of them borrowing more money from the Mann loan agreement. However, when one bothers reading the fine print related to the details, they keep using the word, MAY, when they reference other sources of operating funds. The following is taken directly from the SEC filed documents:
"Additional funding sources that are, or in certain circumstances MAY be, available to the Company, including approximately $30.1 million principal amount of available borrowings under the Mann Group Loan Arrangement."
Notice the key words---"may be"!
Investors need to understand, with companies like MannKind, where even the CFO told you very clearly that it was awkward for him talking about the Sanofi deal due to his lack of understanding the details, you had better read the nuances of their full SEC filed documentation. If you had done so, in the case of the "may be" limitation on them borrowing more from the Mann Group Loan Arrangement, you would understand why they haven't drawn down any of these potential funds since the Sanofi deal was announced. A simple read of the "full-details", you would know why you are seeing the desperate massive dilutions with selling more stock being the solution for their dire cash position.
After reading the above "may be" clause, now read the details of the overriding Sanofi Loan Facility where Sanofi holds first rights to the major hard assets of MannKind. There you will find the following iron-clad provision that Sanofi holds over the head of MannKind's management and their funding efforts. And you can't say that I didn't warn you about these issues!
"The Sanofi Loan facility includes customary representations, warranties and covenants by the Company, including restrictions on its ability to incur additional indebtedness, grants certain liens and make certain changes to its organizational documents."
In simple laymen terms, Sanofi prevents MannKind from incurring any additional indebtedness as they further restrict them from issuing liens required from any potential lender-including the Mann Group Loan Arrangement. This is why the only recourse is for MannKind generating operating funds is by issuing more and more stock. So with the stock trading at the current level, and what the previous price was where they got enough month to last one quarter, ask yourself how many shares they will have to issue now to get the same level of funding. Only now, maybe you will understand why the stock is trading at $0.79 a share, and will be soon going lower.
It is my sincere hope and wish that Afrezza remains available for those patients that need options for treating their medical condition.
Good luck with your future investing decisions!
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.