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Post by matt on Nov 30, 2018 15:41:00 GMT -5
I would hope money would not be a factor . . . Money is a factor in any healthcare decision these days; don't kid yourself about that. Mannkind never did the kind of studies it needed to do in order to be considered superior to the existing standard of care so instead it is left arguing with insurers why they should pay more money for no incremental therapeutic benefit. You can argue until you are blue in the face that Afrezza has benefits that other prandial insulins don't have, and you may even be correct, but the data from a large, randomized, controlled trial is lacking and that is what standards of care are based upon. We know Mannkind cannot make a compelling economic proposition to any insurance company. The cost of producing Afrezza is an order of magnitude more expensive than producing Humalog or Novolog. Likewise, we know the company is not earning any gross profit on the sales they do have because the production costs are higher than the net selling price, and even those costs are artificially low because Danbury and the raw insulin supplies were written down below their original cost and thus are not reflective of the replacement value. On the other hand, we know that Lilly and Novo have increased insulin prices by around 200% in the past ten years. While there may have been some component cost increases in those decisions, mostly the increased prices for Humalog and Novolog are pure profit. The flip side to that coin is that Lilly and Novo could revert to their 2008 pricing, which is roughly a third of today's price, and still be making money selling insulin. That is a price trap that MNKD cannot escape from. If MNKD matched the prices and rebates of Lilly and Novo, the company would hemorrhage even more cash than it is already losing. If MNKD did match them on price, thus absorbing the loss of sales dollars, Lilly and Novo have enough excess gross margin to reduce price and move the goal posts. It is not that Afrezza is not a good product, it is that it is a good product that cannot be manufactured at an economic price relative to the competition AND it lacks the clinical data to prove that the extra cost can be justified by superior patient benefits. This is a simple cost accounting problem; MNKD can never gain enough manufacturing efficiency to play the game according to Lilly's rules; they need to change the rules. The only way for Afrezza to be a success if for MNKD to change the game by changing the standard of care. Dr. Kendall jawboning his friends and medical contacts is not going to get it done. Rehashing the same studies that are already out there is not going to get it done either. Either MNKD steps up and funds a large and extremely compelling study that proves the economic benefits of Afrezza to the healthcare system, or else to quote the great Yogi Bera, it will be deja vu all over again. If MNKD doesn't want to fund that kind of study, which is admittedly a risky proposition, then they should consider pulling the plug on the continual cash drain that the marketing effort has become and plow those dollars into the research pipeline. Rock meet hard place.
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Post by matt on Nov 30, 2018 15:03:59 GMT -5
They are protecting the commercial terms of the deal. It's standard. Yes, in particular the exact milestones and royalty escalation rates are redacted. For example, if UTHR takes on another molecule MNKD will not get $30 million as some people assume but rather two payments of $15 million each for reaching two milestones. Exactly what milestones have to be achieved to trigger the payments is what has been redacted.
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Post by matt on Nov 24, 2018 10:30:48 GMT -5
It is hard to estimate because you don't know what FDA is going to require for approval. In this case FDA will likely give a pass on a full Phase I and Phase II and require a short bridging study to establish safety of the new formulation. UTHR will still have to run a Phase III to demonstrate equivalent or superior results to the existing formulation. Time to complete development is all over the place, but the Tufts Center for Drug Development tracks all new drugs and has published these averages (all figures in months):
Preclinical laboratory and animal testing - 60.5 Phase I - 12.3 Phase II - 26.0 Phase III - 33.8 FDA Review and approval - 15.6 Total time to market - 148.2
As I said above, these are averages spread over several thousand drug, and there is a lot of variance in the sample so use these numbers as a guideline and not the absolute truth. However, if the new formulation is Phase III ready, and the company can negotiate a complete pass on the Phase I/II requirements, it would still takes about four years to reach the market for an average drug.
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Post by matt on Nov 7, 2018 11:17:33 GMT -5
The warrants are exercisable for six months from their effective date, which I think puts them out until mid-April. As I can recall, there are 14 million warrants priced at $2.38. If you want to double check that, the most recent 10Q has the details.
As for what will happen, nothing will happen unless the PPS goes above $2.38. You are correct that a warrant is similar to an option, the difference is that a warrant is issued by the company and if exercised will increase the number of shares outstanding while an option is a contract between third parties that does not affect the number of shares. The thing to remember about a warrant is that part of the value is an implied put option in that if the stock price moves lower then the holder will not suffer the loss while if the warrant is exercised and the price moves lower then the holder suffers the price decline like any other shareholder. For this reason, options and warrants are rarely exercised early.
However, if the price goes above $2.38 the holder may go short at that point. Why? If the price later declines down to $2.10 the holder makes 28 cents on their position. If the price increases to $2.50, the holder can exercise the warrants at $2.38 and deliver the new shares to close out the short. Warrants are rarely used in isolation, they are part of a complex portfolio strategy, and because the warrants are held by different holders, not all holders will exercise at the same time. There are essentially an infinite number of ways to construct portfolios and an infinite number of holder payoffs.
All you can say for sure is that so long as the PPS remains below $2.38 nothing much will happen. If the price goes higher than the result is indeterminate in the short term, and if the price stays above $2.38 at the expiration date then expect all the warrants to be exercised at the last minute.
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Post by matt on Nov 7, 2018 8:46:54 GMT -5
Does anyone have insights or ideas as to how the new CVS, post Aetna purchase, could affect the sales of Afrezza? Were either CVS or Aetna ‘friendly’ entities as to Afrezza? It really doesn't matter so much if the PBM is "friendly" or not as the ultimate decision on whether a drug is covered is up to the insurance carrier. Some insurers are very generous and use the PBMs to obtain lower handling costs, but the PBM will fill anything they are told to fill. Other insurers are ultra cheap and will use the least expensive solution the PBM can come up with that satisfies the minimum acceptable standard of care. Aetna plans are all over the place because they do a big business in TPA (third-party administration). In a TPA mode, the employer decides what is and is not covered and the insurer complies, taking a fee for managing the paperwork and directly billing the company for the costs incurred. It is really hard to make generalizations about specific providers that offer so many plans funded in so many different ways.
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Post by matt on Nov 1, 2018 14:32:35 GMT -5
Started a new thread because this deserves it's own. Mike said we will be profitable next quarter. He didn't say we will start being profitable next quarter. Is this a 1 quarter thing due to the 1 time payment from UT? We are not going to be profitable from Afrezza sales which would be an ongoing profit. Or are we? Things look very positive. But it sounds like some of us think the runway will be infinite in another quarter. Can someone provide clarity on this? Depending on how the payment from UTHR is booked, the company should be profitable. As I read it, the $10 MM is for formulation and pre-commercial production but if the auditors don't see it that way they may make the company spread the revenue over the same number of quarters that the formulation and production work is done. Absent another UTHR type of deal, the pendulum will swing back to red in the first quarter as the company is still showing more than $20 MM per quarter in operating losses on the base business; Afrezza sales are a long way from filling that hole.
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Post by matt on Nov 1, 2018 7:07:06 GMT -5
This normal, no q data released yet? Most companies release the 10-Q just before the call, normally 30 minutes before, followed by a press release right at the start of the call. It really depends on the company.
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Post by matt on Oct 29, 2018 15:32:16 GMT -5
All this tells you is that a number of people died while taking Novolog which is inevitable Correct, all it tells you is that a number of diabetics died while on Novolog. If that number is not significantly different from Humalog or some other RAI with a comparable number of patients on therapy, then there really is no information value. I have designed clinical trials for severely ill patients knowing with certainty that some percentage of the enrolled patients would die during the 18 month follow-up period, whether they were in the treatment group or the comparator arm. Deaths are only significant if the number is higher than what is expected given the patient population. 155 deaths over a ten year period for a large insulin-dependent diabetic population is not surprising since these patients almost always have hyperlipidemia, hypertension, chronic kidney disease, an increased risk of major cardiac events, and an increased risk of cerebrovascular stroke. I am sure the real number is much higher than 155.
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Post by matt on Oct 25, 2018 10:59:31 GMT -5
Real world data is not subject to the same rigors as data from a controlled, randomized clinical trial. For example, some patients may have adverse events and deal with that issue simply by switching to another type of insulin. Similarly, the adverse event reporting system to which you refer is entirely voluntary and physicians don't always take the time to submit a report (which is why there are 2 reports for 2018 so far and more than 50 last year when sales were much lower).
Ad hoc analysis of data is not going to satisfy regulators or physicians, and it does not come close to "proof" by any modern scientific standard. MNKD could design a proper study that does rise to proof within a statistical margin of error, but until that happens don't expect a label change or an updating of standards of care.
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Post by matt on Oct 24, 2018 9:57:07 GMT -5
1. When they expect to complete Phase 3 trials 2. When they expect to begin marketing the drug 3. Projected revenue and market penatration 4. MNKD's royalty % Some guesses on your questions: 1. UTHR has to start the trial first, and that requires completion of the formulation work. Give it a year from today, at least. 2. Standard FDA approval cycle is nine months from submission of the NDA, and it typically takes a minimum of 2-3 months from the end of Phase III to compile the NDA filing. Since this is an older drug, FDA will likely focus on the dosing and adverse events profile more than the safety of the drug itself. Adding 1 and 2 together gives you an expected date about 24 months out, maybe a few months shorter if the Phase III is exceedingly clean with few problems. Six months after the filing of the NDA is the best that can be expected for a drug that is available in other formulations. FDA has moved faster than six months, but only for novel drugs where patients have no acceptable alternative therapeutics, and even "accelerated approval" only shortens the time line by two months (i.e. from a benchmark of nine months to seven). 3. That is TBD. The price point UTHR selects will determine how well insurance will cover the new formulation, the competition's (Liquida) success or failure will have a lot to do with whether this is a highly competitive market or whether UTHR has exclusivity for a while. Since UTHR owns the market at present and any sales of a TS formulation will cannibalize their existing business, there will be a trade-off that is highly influenced by manufacturing cost and operating profit margins. Don't expect UTHR to be very transparent about those numbers. 4. Companies very, very, very rarely disclose that information. Almost all partnerships have the royalty and milestones sections redacted and those sections are given the protection of a Confidential Treatment Order by the SEC, typically for an initial five years but renewable. Companies paying royalties never want to let the market know how much they are willing to pay as that is important information their competitors would like to know, while companies receiving the royalties and milestones would love to talk about it. Normally the company writing the checks can demand confidential treatment.
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Post by matt on Oct 21, 2018 14:24:16 GMT -5
I did M&A for a good part of my career for a major industry player. I literally looked at hundreds of potential buyout targets in that time. What people usually fail to consider is that deals get done when the deep pocketed company needs the target added to their product portfolio and the price is low enough that it will be accretive to the acquiring company's income statement within 24 months. The bigger the price tag, the more difficult it is to meet the second criteria. Never forget that the acquiring management is not eager to dilute earnings for more than one year because if they do, their shareholders and directors will skin them alive.
Afrezza frankly has negative value for any potential buyer with the possible exception of Lilly or Novo Nordisk. The drug does not breakeven at the gross profit line, let alone the operating profit line, and it would be a weak candidate to lead an entry into the diabetic space although it might be an interesting addition to Lilly or Novo since they already have an established sales channel. Technosphere is likewise an interesting idea, but the principal patents date to the 1990's and those have expired long ago so there is nothing to keep a competitor from attempting to clone TS; most big pharmas have deep expertise in manufacturing. An acquisition of the technology might be worthwhile if the price is low enough, but to get a big pharma to pay up for a drug delivery technology that has lost its principal patent protection is not a realistic expectation unless they are absolutely desperate for a delivery method on a new drug where all others have failed.
The overwhelming percentage of acquisitions for established companies go off at a 20% to 35% premium, with numbers at 50% or more for high growth or "first in category" therapeutics. Acquirers pay a premium based on the income that already exists or is reasonably foreseeable PLUS excess cash on the balance sheet MINUS any debt PLUS the value of any sales channel or manufacturing synergies. They only bother to calculate what that means on a per share basis after they first come up with an overall dollar value they are willing to pay, net of cash and debt, because that is what will hit the acquirer's financial statements.
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Post by matt on Oct 20, 2018 14:46:20 GMT -5
The article was factual, FDA did issue a warning letter and they did quote it properly. However, as warning letters go this was a mild rebuke for ignoring the label copy (an entirely fair point) but this was not a particularly stinging indictment of MNKD. Repeated violations of this type might elicit a stronger response, but as a first offense it is not a huge deal.
The message here is that we you have a black box warning on a drug, the manufacturer cannot make it look like an entirely benign therapeutic, and that is what the social media posting did.
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Post by matt on Oct 18, 2018 10:15:13 GMT -5
Sell side analysts are also sales people to a degree. They partially exist to attract primary banking business and secondary trading activity to sell side investment banks. This ^^^^. Analysis take a lot of time and resource investment so if the bank is not getting some benefit from the expenditure they generally won't cover a stock. Banks that are doing primary issues for securities get investment banking fees for that activity and are more easily persuaded to write coverage even though, in theory, there is no quid pro quo permitted for analyst coverage. Small cap stocks with low share prices just don't attract much attention because there are so many companies in that position. Increase the market cap to several billion dollars and that will change.
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Post by matt on Oct 15, 2018 7:48:20 GMT -5
I’m not familiar with what Novo or Lilly’s COGS are? Dropping a factor of ten would be huge. What is their actual costs of goods sold to net sales of their mealtime insulin ratio? And I suppose for that matter, what is MNKD’s current COGS to net sales ratio of Afrezza? I don't know the exact answer, but the gross profit margins on many "old" drugs is substantially north of 90%, and for many small molecule drugs it is north of 95%. I once worked for a major company in the industry that had product that sold very well and carried a 96% gross margin; quite literally the packaging cost more than the drug inside. We sold that division after a major merger when we thought that business had peaked commercially (we were only charging patients about $75 per year for the drug), but last time I looked, that same drug now costs over $500 per year so the gross margin must be close to 99% at this point. Given the rate of price increase in RAI drugs in the past ten years, I have no doubt that Lilly and Novo could drop prices by an order of magnitude and still be profitable. As for Afrezza, the gross margin remains negative (i.e. it costs more to produce a unit than what it sells for). For the first six months of this year, the cost of goods were $9.1 million while sales were just $7.2 million. Due to the magnitude of asset write downs and reserves taken against the bulk insulin at the end of fiscal 2015, the true "apples to apples" cost of sales would be even higher since the 2015 write-off reduced the carrying cost of the plant and the bulk insulin is carried at a cost less than replacement value. Going the other direction, a portion of cost of sales is fixed charges for manufacturing overhead and depreciation that would not increase substantially if sales increased, but since the company does not break that out in the financials it is only a guess what part of current costs are fixed, semi-fixed, and variable. Suffice it to say that if sales increased by a factor of ten, cost of sales would increase by a factor somewhat less than ten, and that the gross margin would likely turn from negative to positive. What it does show is that MNKD is not in a good place if the competition want to maintain market share. When a company is struggling to generate a positive gross margin at the same time that its main competitors could reduce prices by 90% and still be profitable, that is not a viable long-term competitive position unless its product is so overwhelmingly superior that price doesn't matter. Afrezza has yet to make a strong enough case for product superiority to overcome its inferior production economics.
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Post by matt on Oct 11, 2018 8:04:52 GMT -5
The purpose of the HSR waiting period is for DOJ / FTC to assess the impact on competition in an industry sector. Most of the time the review centers on the Herfindahl-Hirschman index which measures the concentration of companies in a particular sector, essentially a measure of the market power controlled by the top few firms. If there are 20 competitors who each have 5% market share, combining two of them will barely move the HHI but if there are only 5 competitors and the top three control 80% of the market, any transaction involving the top companies will impermissibly increase the HHI.
A lot comes down to how DOJ want to define the sector. Normally in generic drugs there are low barriers to entry so there are minimal impacts on competition if the leader acquires a potential competitor that presently has 0% market share. However, in this case where UTHR has already scooped up SteadyMed taking another potential competitor (i.e. MNKD) out of the picture may leave too few viable competitors. A lot may rest on an evaluation of MNKD's ability to find a different partner or to commercialize a competitive product on its own. If DOJ thinks MNKD is a credible marketing threat to UTHR if the drug remains unpartnered, then they are more likely to object to the deal. If DOJ thinks MNKD is too weak to bring Tret to market on their own or if they don't think MNKD can attract another generics partner, they are less likely to object.
Remember too that this transaction will never be "approved". The HSR regulations give the government 30 days to register an objection, but if no objection is raised then the transaction can automatically move forward on day 31. In this case, no news is good news.
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