Dilution needed up to end of 2019. Am I wrong ?

[parrerob]

Hello guys
I made some math in order to understand how many shares/dilution We could have from now till end of 2019 considering info received during last earnigs call.

Suppose to start “Q1 2018” with 500 scripts per week (We are far away from having that media value but let’s see)

We know now that to be financially sustainable We need around 2000 Afrezza script per week …. That’s considering the 600$ net rev per script (Conservative speaking I will not consider that Net Rev by script should increase following increase of scripts and better manufacturing and logistic planning… but let’s see)


Now suppose We want exactely to be sustainable by the end of 2019.

In case it happens (in case !) We need something like a 20 % increase by Quarter from now on…..

Q1(18): 500 scripts/week; Q2(18): 600; ………Q4(19) 1791;


Looking these numbers I was quite optimist…. First step is difficult (500 scripts per week in Q1(18)) but second step is mandatory and achievable (600 scripts per week for Q2(18)).


Following these numbers and thinking about Net Revenue We will have

Tot Net Rev 2018: 26 Million (quite same result from MNKD new guidance)

Tot Net Rev 2019: 54 Million

So We need about 70 Million for 2018. Then If I’ve understood correctly about 20 Million from cash at 1 Jan can be used for operating expenses. So We need to collect “only” 50 Million$ (considering the net revenue let’s say We need 16 Million$ end of Q1, 14 Million$ end of Q2, 11 Million$ end of Q3, 9 Million$ end of Q4)

And for 2019 We will need another 40 Million$ (Let’s say 13 Million$ end of Q1, 11 Million$ end of Q2, 9 Million$ end of Q3, 7 Million$ end of Q4)

How many dilution We need so far ?

We need cash by end of March 18 (correct ?)
The best solution in our situation is obviously to dilute less possible, time by time


So:

March 18, pps = 2,5; dilution needed 16 Million $: around 6.5 Million shares

June 18, pps = 2,5 (with 600 scripts per week I assume no big change in pps): 14 Million $ to run the next quarter; around 5.6 Million shares

September 18, with 720 scripts/week and probably last weeks of the quarter near 800, I can assume minimum a 3,5 pps (just my conservative crystal ball); 11 Millions $ needed; 3,1 Millions shares to run the quarter

December 18, 864 scripts/week end of quarter probably 900… PPS will fluctuate a lot but I assume a 5$…; 9 Million needed; 2 Million shares around

I will assume also that if this will be the trend, our 2019 PPS could be at a medium conservative 10$ value (if 20% script trend is confirmed knowing MNKD PPS could fluctuate between 5$ and 25$) so practically with another 4 Million shares We could cover the year.

Resuming the picture:

Assumptions1: 20% increase in scripts per each quarter

Assumpions2: PPS value very conservative during the path (crystal ball (:-)). I believe I was conservative in my assumptions (specially thinking how was executed our latest dilution…. 6$ when PPS was clearly the half before and after dilution..... )

Results is that We need to dilute: 20-25 Million shares
totally that's 20% of today total shares
That’s amazing…. I was thinking much more than that…

QUESTIONS/help:

1) am I wrong in something (except PPS assumptions where sure I am wrong but I hope to have been conservative)?

2) Is the 20% achievable in Your opinion ?

[matt]

I don't think your numbers fully reflect the cash cost of operating expenses or, in particular, the cash cost of manufacturing the product.  Those numbers will run close to $100 million especially if MNKD is aggressively selling (which increases the sales and marketing spend).  Remember that net sales for 2017 were $9.2 million but cost of production was $17.2 million, or a loss at the gross profit line.  It is certainly the case that a lot of manufacturing cost is fixed overhead that won't change very much with volume increases or decreases, there must also be a significant variable cost component baked into those numbers, but there is not enough detailed information on production economics in the 10-K to tease out the split of fixed versus variable cost.

The other thing to watch out for are the mandatory debt repayments scheduled for 2018 (and early in 2019) and the minimum insulin purchases from Amphastar.  Those charges may not appear on the income statement, but they are cash effects that will hit the balance sheet during the accounting year.  Those are cash requirements have to be funded as well.

[akemp3000]

There's too many outstanding issues that could could affect dilution requirements even in 2018. One significant stock sale in 2018 could eliminate the need for dilution in 2019 all together. Others include the two new international term sheets currently being finalized plus Biomm in Brazil beginning sales in early 2019. Add to this the unknown but forthcoming results from the STAT study and Dr. Kendall coming on board and maybe even a partnership for Trep-T. The math exercise is appreciated but IMHO it's highly unlikely that dilution will be required all the way to the end of 2019.

[xoxoxoxo]

Remember we lose money on selling the afrezza we make now because of the over capacity of the manufacturing plant. Gotta sell a lot more to start breaking even on cost of goods sold, let alone worry about profits that could offset other operating expenses.

[traderdennis]

Mar 2, 2018 13:43:36 GMT -5 xoxoxoxo said:

Remember we lose money on selling the afrezza we make now because of the over capacity of the manufacturing plant. Gotta sell a lot more to start breaking even on cost of goods sold, let alone worry about profits that could offset other operating expenses.

If mnkd uses a dtc campaign those costs are not accounted for in op’s original post

[mytakeonit]

From an accounting standpoint, you never lose money selling something. You may not be profitable now, but it seems like that may be resolved shortly.

[pat]

Can you explain what that means?

[falconquest]

Mar 2, 2018 17:42:25 GMT -5 pat said:

Can you explain what that means?

Post by mytakeonit on about an hour ago
"From an accounting standpoint, you never lose money selling something. You may not be profitable now, but it seems like that may be resolved shortly."


Yeah, I could use a little help with this business concept myself.

[dreamboatcruise]

Mar 2, 2018 18:28:20 GMT -5 falconquest said:

Mar 2, 2018 17:42:25 GMT -5 pat said:

Can you explain what that means?

Post by mytakeonit on about an hour ago
"From an accounting standpoint, you never lose money selling something. You may not be profitable now, but it seems like that may be resolved shortly."


Yeah, I could use a little help with this business concept myself.

One might say from a cash standpoint you don't lose money selling something... as the cash is lost when you purchase and/or manufacture it.  From an accounting standpoint you don't accrue the loss until you sell it... until then it sits as an inventory asset, unless it expires or it's determined that it is unlikely to ever be sold above its COGS value and thus must be written down.

[bthomas55ep]

Mar 2, 2018 12:25:09 GMT -5 akemp3000 said:

There's too many outstanding issues that could could affect dilution requirements even in 2018. One significant stock sale in 2018 could eliminate the need for dilution in 2019 all together. Others include the two new international term sheets currently being finalized plus Biomm in Brazil beginning sales in early 2019. Add to this the unknown but forthcoming results from the STAT study and Dr. Kendall coming on board and maybe even a partnership for Trep-T. The math exercise is appreciated but IMHO it's highly unlikely that dilution will be required all the way to the end of 2019.

Yes. Agree AKemp. There are too many variables to attempt to calculate potential dilution with any reasonable accuracy. Adding to your list..... What if Mannkind gets $100 Million in Milestone payments that we're established in the RLS agreement? If that starting happening this quarter, further dilution could be significantly reduced.

[falconquest]

Mar 2, 2018 18:33:36 GMT -5 dreamboatcruise said:

Mar 2, 2018 18:28:20 GMT -5 falconquest said:

Post by mytakeonit on about an hour ago
"From an accounting standpoint, you never lose money selling something. You may not be profitable now, but it seems like that may be resolved shortly."


Yeah, I could use a little help with this business concept myself.

One might say from a cash standpoint you don't lose money selling something... as the cash is lost when you purchase and/or manufacture it.  From an accounting standpoint you don't accrue the loss until you sell it... until then it sits as an inventory asset, unless it expires or it's determined that it is unlikely to ever be sold above its COGS value and thus must be written down.

Yup, and it all depends on when you take the snapshot doesn't it?

[mytakeonit]

As long as the item is priced correctly, meaning above cost, you won't lose money selling it. In the case of Afrezza, it was determined on this board that we are selling it at a high price. So, if you sell a box of Afrezza, you won't lose money on that box. You will lose money if you didn't sell that box. Now it is up to the sales people to sell all those units of Afrezza to become profitable.

I'm sure they are currently watching inventory numbers and won't be running the production lines unnecessarily. They also will have to increase sales to wipe out excess inventory of insulin that they are contracted to buy. As sales increase further, they'll be able to negotiate more efficiently on ingredient purchases. etc, etc, etc

Mike C and company seem to have the numbers well in hand and will get MNKD to a better place shortly. A place where we will be able to lower selling prices, so PWD without insurance may be able to afford it with less pain.

Oops! That was the class bell ringing. Have a good weekend short kids!

[falconquest]

Mar 2, 2018 20:03:31 GMT -5 mytakeonit said:

As long as the item is priced correctly, meaning above cost, you won't lose money selling it. In the case of Afrezza, it was determined on this board that we are selling it at a high price. So, if you sell a box of Afrezza, you won't lose money on that box. You will lose money if you didn't sell that box. Now it is up to the sales people to sell all those units of Afrezza to become profitable.

I'm sure they are currently watching inventory numbers and won't be running the production lines unnecessarily. They also will have to increase sales to wipe out excess inventory of insulin that they are contracted to buy. As sales increase further, they'll be able to negotiate more efficiently on ingredient purchases. etc, etc, etc

Mike C and company seem to have the numbers well in hand and will get MNKD to a better place shortly. A place where we will be able to lower selling prices, so PWD without insurance may be able to afford it with less pain.

Oops! That was the class bell ringing. Have a good weekend short kids!

Sooooo, in your world we just leave out COGS. I'm glad class is dismissed!

[agedhippie]

Mar 2, 2018 18:28:20 GMT -5 falconquest said:

Mar 2, 2018 17:42:25 GMT -5 pat said:

Can you explain what that means?

Post by mytakeonit on about an hour ago
"From an accounting standpoint, you never lose money selling something. You may not be profitable now, but it seems like that may be resolved shortly."


Yeah, I could use a little help with this business concept myself.

It's trolling. A sale is a credit in the P&L so you cannot lose money. Of course there are materials and overheads so Afrezza still loses money with every box that goes out the door. Not as bad as last year when the loss was around 17% per box, it's now down to 12% loss per box. The GA & Sales costs took another $28M last quarter, and since Afrezza losses money per box sold that just adds to the stockholders deficit which is now increased to $214M.

To answer the original question - of course dilution is going to be needed, the only question is how much.

[pat]

Um.

That explanation is simplistic and not how it works.

Short kid signing off.