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Post by matt on Mar 12, 2018 8:44:48 GMT -5
whether it is India or Europe, to sell afrezza in another country the price needs to come down. Europe, because it has national health insurance. India because, I do not know enough about India. Private pay? Brazil it will be the same, the price will be less than what afrezza sells for in the US. A few rich will private pay? It was the milestones that will come in handy in the moment? hell, 10 million people, if 2000 are rich enough to self pay, we have doubled our weekly scripts. The vast majority of countries are a combination of government funded healthcare and private pay. Essentially everybody is covered by the government program and wealthier folks or those with very good jobs can opt for a private plan. The private plans give access to hospitals and healthcare comparable to the best of what is available in the US. The government plans are bare bones, the hospitals are not very nice, and there are waiting lists for elective surgeries. The challenge is that before you can get excited about approval in any country, you first need to understand who is going to pay for it. The EU created its own grey market in drugs when poorer countries like Portugal set drug prices at the low end and countries like Germany set them high. Nobody ever called the Germans stupid, so drug demand soared in Portugal as German hospitals placed orders in Lisbon and shipped the pills back to Germany, and the EU courts ruled that this was permissible. Drug companies had the choice of raising prices in Portugal (thereby closing off that market for most patients) or dropping prices elsewhere giving Germany a free ride. Don't expect the public hospital systems in most countries, even in Europe, to buy Afrezza as they are very, very price sensitive and will switch suppliers for a price difference of a few pennies. Europe would be an attractive market only for Germany, Austria, Netherlands, Scandinavia, and perhaps Belgium, less than about one-third of the EU market, and even then expect that Afrezza will have to sell at least a 30% discount to US prices to crack the German krankenkassen (their version of managed care funds). Just be realistic about milestone payments. Any marketing partner worth having knows the pricing dynamics by hospital and they will quickly figure out the size of the opportunity and do the math on what they have to gain. They are not going to pay out big milestones (or any milestones) to gain exclusive access to markets such as France, UK, or Spain where every sale will be like pulling teeth. Which brings me back to my favorite topic and that is what is the true unit production cost of Afrezza. If the market will demand a 30% discount from US price, and the distributor will demand roughly a 30% discount from the local market price, is there enough profit margin remaining for MNKD to make a profit? Do the math and it suggests that MNKD needs a fully burdened manufacturing margin of at least 50% (based on US prices) and as of the fourth quarter MNKD was still showing a negative manufacturing margin. A lot of that is probably due to underabsorbed fixed costs, such as plant overhead, but the company needs to be more transparent on what the variable production cost really looks like. Then investors can assess what price reductions would really mean to the company and understand which foreign markets are realistically accessible. Just because a country has 50 million people does not mean that you can make money selling Afrezza to that country.
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Post by matt on Mar 9, 2018 15:28:12 GMT -5
What is happening next Wednesday? It's international pie day or pi day if you prefer.
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Post by matt on Mar 5, 2018 15:30:46 GMT -5
The pipeline is important to any single drug company, and given the intense competition in the insulin sector, that goes double for MNKD. However, I don't know that putting generic drugs into an inhalable delivery system constitutes a pipeline.
If you look at the history of drug delivery solutions, the lion's share of the profit always goes to company developing the drug and never the drug delivery system. There are lots of ways to get a drug into the human body and for this reason there have been relatively few companies that have ever created portfolio of profitably drug delivery solutions; Alza was the notable exception. It should also be recognized that TS is an older technology and most of the key patents have lapsed at this point, so other companies don't have to deal with MNKD to access the technology unless it is cheaper for them to do so.
I would much rather see MNKD with a few developmental stage drugs in the portfolio. While drug delivery is always risky, addressing an unmet therapeutic need will create far more value that trying to package 10 already approved drugs into the TS delivery system. Both will suck down cash, but Wall Street will be more tolerant with funding a novel drug program if it is carefully selected.
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Post by matt on Mar 2, 2018 8:43:08 GMT -5
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.
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Post by matt on Feb 28, 2018 8:36:53 GMT -5
With respect to Mike's comment about having a signed term sheet and hoping to have another soon, does anybody have experience regarding how long it takes to go from having a signed term sheet to having a finalized deal? It all depends on the term sheet; the more detailed the terms the less there is to discuss. Some companies put a lot of effort into creating a very detailed term sheet such that a good lawyer can draft a definitive document in a few days, while others draft term sheets so vague they boil down to "the parties agree to have discussions on creating some sort of arrangement, maybe". The first is a detailed outline of a final agreement, and the second is essentially worthless. I have been involved in deals that went from an initial introduction to essentially closed in a single day, and I have also been involved in deals where the negotiations took years (literally years). If the term sheet is comprehensive, most of the sticky points should have been discussed and settled. Usually it comes down to the number and magnitude of the firm obligations for each side, and the provisions that allow the contract to be cancelled or amended. Companies like to talk; they don't like to write checks.
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Post by matt on Feb 27, 2018 8:43:29 GMT -5
Servier is a third tier pharma company with mostly traditional drugs, many of which were acquired as family owned pharmaceutical companies disappeared all over Europe. They do have a sizeable footprint, but their ability to market a drug effectively is mostly focused on Europe which should not be surprising. In recent years they have shown an interest in getting away from traditional pharmaceuticals (i.e. low margins, lots of competition) and branch out into newer forms of pharmaceuticals, notably an IL-1B antagonist developed by Xoma.
Servier agreed to fund $50 million of the development cost of the Xoma program, something all the longs here want to see from a partner, but the ask was worldwide rights for all cardiovascular and diabetes indications, and rights to all other indications outside the US and Japan. That was a very expensive deal from Xoma's standpoint. Ultimately, Servier pulled the plug on Xoma, just as Sanofi did on Mannkind, when the clinical results were not what Servier hoped to see.
The moral of the story is that to get a big international deal with lots of up-front money is likely going to cost MNKD dearly in terms of lost market access, and there is no guarantee that the licensee will remain engaged if the results are poor. The Sanofi deal to put up $150 million, funded the operating losses, and still let MNKD retain 35% of the worldwide profit was a great deal even if the results were not what everybody, including Sanofi, would have liked. Servier and other third tier pharma companies do not have the deep pockets of a Sanofi and will drive a much harder bargain out of necessity. Be careful what you wish for.
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Post by matt on Feb 22, 2018 10:24:07 GMT -5
Amazon may well be self insured, and the PBM is thus merely acting as a plan administrator. Especially in that situation, the PBM will pretty much put whatever drugs the company wants on the formulary. Indeed, most employers of a certain size are self-insured and whether you are talking about the managed care company that processes claims or a PBM, the employer ultimately calls the shots on what is and is not covered. In those cases, the managed care company and PBM are used as a TPA (third-party administrator) on a fee-for-service basis with the TPA paid a fixed fee for each claim or script processed. This makes sense for the employer because the TPA has the necessary systems and infrastructure to process claims much more efficiently than if the employer tried to do it themselves. This is a very important distinction that many people misunderstand. A large employer in a given market may use Aetna as a TPA and that employer may have exceedingly generous benefits due to collective bargaining agreements, industry practice, or some other reason. Just because Aetna seems to cover a drug under that particular plan, it may not cover the same drug under a different plan, even a plan with the same employer! For example, an employer may have one plan for unionized employees and a different plan with different benefits for non-unionized workers, but both plans are administered by the same TPA. The situation is totally different than plans offered to the general public under the "Obamacare" mandates where coverage and prices are uniform across a state for a particular plan level.
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Post by matt on Feb 19, 2018 8:35:03 GMT -5
Bond firms like Deerfield don't EVER relax covenants without cost. As noted elsewhere, there is a NASDAQ marketplace rule that prevents a company from issuing more than 20% of its outstanding shares at a discount in any six month period without prior shareholder approval. However, a 1% discount and a 20% discount are treated the same; both are an issuance at a discount. If Deerfield can negotiate a percentage discount and a number of shares that keeps MNKD in compliance with NASDAQ listing, that is a win for all. What form might you envision that taking... perhaps MNKD paying down some future debt with shares and getting a temporary reduction in the $25M end of quarter covenant? All I meant is that if Deerfield needs $1 million in concessions to ignore the covenant, they could either take 1 million shares at a $1 discount or 500,000 shares at a $2 discount; the math works out the same. The problem with deeper discounts is that the market tends to ignore the substance of the transaction and looks to the PPS involved, and then lowers the price for ALL shares to that level. The NASDAQ rule is the opposite; it looks at shares issued versus shares already outstanding notwithstanding the PPS. Note too that an ATM facility is, by definition, shares issued "at the market" while the NASDAQ 20% rule only limits shares issued at a discount to the market. An ATM facility assumes there is enough retail demand and churn to place new shares, but it is an alternative. At some point you have to wonder whether biting the bullet and doing a major secondary offering (which is also deemed to be "at the market") is less painful than the incremental death by a thousand cuts strategy the company is pursuing. Both are painful, but sometimes it is better to have all the pain at once.
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Post by matt on Feb 16, 2018 18:53:46 GMT -5
Bond firms like Deerfield don't EVER relax covenants without cost. As noted elsewhere, there is a NASDAQ marketplace rule that prevents a company from issuing more than 20% of its outstanding shares at a discount in any six month period without prior shareholder approval. However, a 1% discount and a 20% discount are treated the same; both are an issuance at a discount. If Deerfield can negotiate a percentage discount and a number of shares that keeps MNKD in compliance with NASDAQ listing, that is a win for all.
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Post by matt on Feb 15, 2018 10:24:15 GMT -5
People do leave jobs because they can't stand working for their immediate superior. Case in point: Me. Also, some love their job but still move around a lot. For new experiences. Or for more pay. Or for a new challenge. Lilly is a company in transition, like much of pharma. He might well have looked around at the diabetes business and decided it was not going to be an interesting place to work in the coming years. Likewise, he may have look around Lilly to test whether he had a good chance to jumping to a different therapeutic area or whether there were too many strong candidates with better resumes. Ultimately, the best way to get a job as a medical director at any pharma company is to have been the medical director at a pharma company. Many clients specify to the recruiter that they want to hire executives with a specific experience and being number two, even in a great organization, does not get you the interview. If he comes to MNKD and the company does well, then he makes our very well on his incentive compensation. If MNKD does not do well and he decides to move on, he now gets to interview for the top job at other companies, and the top job at most biotechs tends to pay more than what a division executive will be making at Lilly. It is not a bad bet for him to make.
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Post by matt on Feb 14, 2018 9:04:42 GMT -5
Nobody has an earnings call before the auditors have signed off for the year (end of year) or completed their review (other quarters). The reality is that large audit clients with established businesses have cut-off dates for accounting purposes as early as December 10 and they simply estimate the last 20 days of the year. This only works for very large companies with stable businesses and strong internal audit functions, but that is a good description of most large firms. Proctor & Gamble, for example, pretty much knows how much soap they are going to sell in the last few weeks of the year; a few extra truckloads of Tide gets lost in the rounding. That lets P&G have an early audit and early earning release.
Mannkind is in a different category for a variety of reasons and they will be one of the last audit clients to be completely wrapped up. In recent years they have experienced significant write-downs of capital assets, restructuring of debt and debt covenants every few quarters, a requirement to buy insulin inventory that far exceeds production needs, there has been a change in their sales model from Sanofi to contract to direct representation, there have been changes in packaging, there has been a change in CEO and some directors, MNKD wants to shift their sales recognition method going into Q1, and so on. Those are all material audit risks and something that the auditors will take extra time to look at closely. The company cannot really schedule an earnings call until the auditors have signaled that the audit is coming to a close with no further adjustments required.
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Post by matt on Feb 11, 2018 11:21:58 GMT -5
Do these events and new faces help to bring BPs back to the negotiating table? It's ludicrous to think that no BP has interest in being part of the newest and possibly the best treatment in diabetes. I have done a lot of mergers deals during a 35 year career in healthcare, and closed more than $25 billion in transactions both large and small. For every transaction I closed, I must have looked at ten other opportunities with a significant level of interest (i.e. visited the plant, did physician focus groups, dug into the detailed financials, etc.). The process is not what most people think. Big Pharma figured out some time ago that they could not be all things to all people and that it was necessary to focus. Not so long ago, it was common to see a pharma pursuing 10-12 different therapeutic areas but now 4-5 is more likely. Some older drugs from the larger portfolios may still be manufactured, but there is no new R&D taking place in the therapeutic indications that have been rationalized. In some cases, pharmas sell off the orphan assets or else they swap their orphaned products with competitors that are also trying to increase scale in their portfolio. Metabolic disease, including diabetes, is one area many pharmas have chosen to exit and I am not aware of any major pharma that has entered this segment in the past five years. For better or worse, that limits the number of companies MNKD can partner with or be acquired by. Big pharma always looks at sales force and manufacturing alignment early in the process and if the physician call point is different or if the manufacturing technology is not closely aligned with the existing infrastructure, most will not take a serious look. We know that Lilly and Novo have a strong presence in the segment, with Sanofi winding down their presence in diabetes due to patent expiration on Lantus. Sanofi is going to be out of the segment in a few more years, and a duopoly will flourish. Big Pharma is a term that gets thrown around like it is a generic category, but it isn't. There are big oncology companies, like Novartis and BMS, and there are big companies pursuing neurology and pain, like Pfizer and Glaxo, but for the most part each company drives in its own lane. Big Pharma is not interested in diabetes, Lilly and Novo are interested in diabetes while Novartis, Pfizer, and a host of others have pruned metabolic disease from their pipeline. The others who want to play in diabetes are largely generic companies (e.g. metformin), but Afrezza is not an inexpensive drug to produce or market so it doesn't fit with the generics business very well either. Unless another large company with very deep pockets decides to jump back into metabolic disease, which is extremely unlikely, then the only big players left in diabetes are Lilly and Novo, and they don't seem to have much interest. All of that might seem counterintuitive to MNKD shareholders, but if you never had the job of marketing an orphaned product around the industry then you don't appreciate how decisions are made in the board room. You have to assume that the consultants hired by MNKD to look for a deal have shaken the tree pretty hard and have come up empty.
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Post by matt on Feb 6, 2018 16:33:21 GMT -5
I dunno, this guy's education is centered in Minnesota. Perhaps he's wily, though. After spending all those winters in Minneapolis, he was just happy to get hired by a company in California. I have made a few trips to the Univ of Minnesota in Jan and Feb, and it is absolutely brutal up there this time of year. On the other hand, it is one of the most underrated medical schools in the country. Some of the work they do there is absolutely top notch, and a lot of it is in diabetes. They tend to be a bit more device focused than most, which is logical given the proximity to Medtronic headquarters, but they also do some interesting work on transgenic animals.
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Post by matt on Feb 5, 2018 7:45:01 GMT -5
Recapitalization is a vague term that can mean several things, but in the end the company needs more money. The money can come from licensing deals, marketing partnerships, or stock dilution but the most controllable and predictable source of funds is a stock sale.
I am sure Mike would love to see an extra $300MM on the balance sheet, but that is not a realistic number for a secondary offering given that the current market cap is also about $300MM. The most any company does under normal circumstances is about 20% (i.e. $60MM) both because of the impact on the current shareholders and a NASDAQ Marketplace Rule that prevents a company from issuing more than 20% at a discount in any six month period without specific shareholder approval. The 20% limit includes any shares issued to Deerfield in lieu of cash or to relax a covenant, so the more likely figure will be around $40MM or less. A lot depends on market conditions and if you can predict those with any precision you should be working on Wall Street.
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Post by matt on Feb 2, 2018 14:10:24 GMT -5
A drug's placement on a formulary is not synonymous with how well it works compared to others. There are often contracts (i.e. $$$) involved along with other factors. Sometimes I wonder if being "better" is even considered by 3rd party payers. Better is considered by a medical team at each payor (but not at the PBMs who are more commercially focused). Rarely, if ever, will a payor deem a product superior to another unless the FDA has allowed the manufacturer to label the drug as superior. This is why a non-inferiority label is a distinct disadvantage in any market with more than one product available because the manufacturer cannot market on that basis.
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