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Post by matt on Jun 13, 2017 9:37:11 GMT -5
Afrezza is commercially viable in the US but they need big Pharma to promote drug...at some point theyll need bp for blockbuster sales. Promotion from leading endos is a must for success. They also need bp cash and sales force to spread understanding of dosing . . . All true, but it is not obvious that there is enough economic incentive for a big pharma to want to play the game. Not all pharmas have a sales force that can effectively detail endos, indeed it may be a very short list consisting of Lilly, Novo, and Sanofi. If a sales force is pushing Afrezza, they are not pushing other drugs in the portfolio and every unit of Afrezza sold costs the partner lost profits on the insulin product prescribed now. When all is considered, taking on Afrezza may be a net losing proposition for Lilly or Novo. Part of the problem with Sanofi is that they tried to keep pricing high, and that might have had a lot to do with the economic dynamics I just described. While cannibalizing your own product before somebody else does it for you is often a good idea, it may not be a good idea if you only stand to reap 65% of the net profits from the new line. I don't think it was Sanofi being stupid; they knew Lantus was hitting the patent cliff and were looking to protect their margins. I wouldn't expect Lilly or Novo to behave any differently.
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Post by matt on Jun 12, 2017 8:24:59 GMT -5
The days are pretty much over where a drug can be launched and sold cost-effectively in a single market, even a market the size of the US. Either you are a global player, or you are road kill, and increasingly small pharmas are either merging with larger ones or they become road kill. The economics are fairly simple; once you have spent the money to compile a regulatory file the cost to get approval elsewhere is a fraction of the cost. It is still a substantial cost, but most countries accept the Common Technical Document which is an all electronic document containing the key information needed to get a drug approved and this is supplemented with country-specific additions (like foreign language label copy).
What is disappointing is that no global player has emerged as partner, and once a company starts carving out major markets like Brazil, it becomes almost impossible to attract a truly big partner for a global deal. Building international share with a coalition of different partners with different financial strengths and different priorities is a hard slog. Somebody at MNKD will have a few million frequent flyer miles when they are done.
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Post by matt on Jun 10, 2017 8:09:56 GMT -5
The company does not have a prudent amount of cash on the balance sheet, which most financial people will tell you is a minimum of one year of anticipated cash burn. The analogy is that of a family that is barely making its mortgage payments each month; that is fine while the good times last but when the furnace dies in January where does the money come from to replace it?
The financial markets are fickle, and medical stocks in particular are due for a correction. The sooner the balance sheet is corrected the better because as the financial condition continues to deteriorate the price of that financing will only increase, and at some point it will not be available at all on commercially reasonable terms. People have talked about a rights offering, but that requires authorization of more shares and that is a minimum 21 day process due to the need for a fresh proxy and shareholder vote (SEC rules require 21 day notice before a vote). There is hope for more foreign deals, but one was just announced with Brazil that came with no up-front money. More licenses of TS are possible, but RLS only paid $1 million and that required MNKD to do a lot of development work before it was paid, and $1 million only covers three days of operations!
The problem is that many of the ideas on the table take time to develop and are uncertain at best, while the $10 million of debt due in July is a certainty as in the $7 million per month burn rate. The market is not going to look kindly on the company until some of the ideas for strengthening the balance sheet shift to completed transactions.
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Post by matt on Jun 5, 2017 8:01:18 GMT -5
Until we know where the cash is coming from, it's naive to rule out the possibility of Chapter 11 reorg. And insisting that the Mann Foundation stake makes this impossible belies a gross ignorance of how these things work. If the Foundation cuts a deal with Deerfield, and the BK judge accepts the plan, the Foundation can come out of Chapter 11 whole while we get squat, it doesn't matter that they hold the same class of shares. Reorgs happen when companies run out of cash. It doesn't matter was the market potential is, it doesn't matter the script trajectory, it doesn't matter whether the company is doing international deals and it doesn't matter what follow-up clinical trials say. If the company doesn't have a source of cash to pay the utility bills and to make payroll, Chapter 11 is right around the corner. The poster is entirely correct that what matters now is knowing exactly where the cash is coming from, when, and how much, and to compare that to the monthly $7 million burn and scheduled debt payments. The person that said Dendreon is not a comparable because its market was "microscopic" has it wrong. In the last nine months before DNDN filed, their sales were $224 million and they still had $125 million in cash, short term investments, and restricted cash. Its two main competitors from Big Pharma are each > $2 billion / year drugs. That may not be insulin size numbers, but a market approaching $5 billion is not microscopic. Dendreon was a company that got approval and was getting traction in the market but was not turning the corner fast enough and ran out of money. There is a lesson here for Mannkind; intensions and improvements in operations are always great for any company, but they must come fast enough to prevent draining the balance sheet of its cash. Dendreon didn't move fast enough and hit the wall. As to the assertion that the Mann Group and Foundation can keep their shares in bankruptcy, that is a figment of the imagination. All claims of each class are entitled to identical treatment in the plan, and the court cannot confirm an reorganization plan that treats some shareholders more favorably than others unless there is " new money" involved, and new money implies taking new risks. If the Mann Group were to put up additional cash as DIP financing that money would be at risk, but if they don't write a check for a fresh investment they will get the same treatment as everybody else. Don't stick your head in the sand and think that BK can't happen to Mannkind. It can, it is not a foregone conclusion, but it can. If management can top up the cash balance in the coming months then Mannkind will live on doing business as usual, but if they can't raise the cash that they need there aren't many options left. For those hoping for a white knight to take the company out with a buyout, the white knight is way better off buying the whole enchilada as part of the reorg process under court supervision as that guarantees there will be no lingering liabilities. Acquisitions out of BK are squeaky clean, lightning fast, and are always the preferred option for the buyer.
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Post by matt on Jun 4, 2017 6:55:06 GMT -5
Could not disagree more.....the price will be paid i.e., $10B+. You first have to find a pharma company willing to pay that amount. Valuations have been crazy in pharma before, the late 1980's saw a lot of recombinant proteins sold for multi-billion dollar price tags, and again with some small molecules in the late 1990's when the dot-com bubble overheated the market. The pharmas spent much of the last fifteen years writing off those crazy bets as they downsized their operations. There are always two parts to an buyout and longs tend to ignore the second part; there must be a management team on the acquirer's side willing to risk their careers paying above the odds for a new drug. Every big pharma has vocal shareholders, often large institutions, active analyst coverage, a more sophisticated and experienced board that MNKD has, and an investment bank that has to write a fairness opinion. A lot of stars have to align to get a valuation in the $10B range and Afrezza is probably from the wrong galaxy.
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Post by matt on Jun 1, 2017 15:23:34 GMT -5
Brazil's healthcare system is a real mix. Some of the public funding is federal, most public funding is from the state, and 60% is still private pay. The private insurance covers mostly wealthy people that can afford it. As for states, those who live in Sao Paulo tend to get good care while those in rural areas get almost nothing. Meanwhile Rio de Janeiro declared a state of emergency during the Olympic games because they could not supply basic city services. Imagine the difference in life style between a poor rural coal mining town in West Virginia and a costal suburb in California like Newport Beach or Malibu. If you have never visited there, Newport Beach may be the only place on the planet with more high-end German cars than Stuttgart.
In general, it is dangerous to say anything about Brazil in general. On one side of the street you can see nice new apartment blocks, surrounded by high wall and armed private security, and on the other side a shanty town with lean-to structures fabricated out of scraps of corrugated aluminum. That is not the exception in large cities; it is very common. The people in the private apartments can get Afrezza if they want it, the other people will not have access to it or many other medicines despite official policy to the contrary.
Will this new deal provide some sales? Almost certainly it will. Will Afrezza be available to millions and millions of diabetics on the government reimbursement schedule? To some yes, to most no. I agree with those who estimate that the drug will sell with an official price of about 25% of the US price as that is a pretty common discount for Brazil. Other chronic therapies, like hemodialysis for example, cost $20,000 to $25,000 a year in Brazil while full reimbursement in the US is $80,000 and in Germany it is closer to $100,000. There is money to be made in Central and South America, but not as much as a cursory glance at the population statistics would suggest. The real opportunities continues to be the US, EU, and Japan, in that order, and that is where the marketing focus should remain.
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Post by matt on Jun 1, 2017 6:58:41 GMT -5
The one thing that someone else already mentioned is that the distributor will be responsible for pricing. I hope they price it competitively, unlike SNY. Pricing is subject to government approval, so expect something of a roller coaster ride on pricing. Brazil has a history of high inflation and while the dark days of several thousand percent hyperinflation are over, the rate is still high by US standards, and periodic imposition of currency controls sometimes means that payments for imports can be slow which erodes the value of any sales. An experienced partner knows how the game is played and will constantly tweak prices to keep up, but it is a bumpy road. In some years you can make a small fortune in Brazil, and the next nothing at all. Overall, it is a worthwhile place to do business but it has always been unpredictable. The requirement for more stability studies is 100% believable; it is incredibly hot and humid, but the trade-off is incredibly skimpy bikinis. You take the good with the bad.
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Post by matt on May 31, 2017 10:16:42 GMT -5
So divide the weekly burn rate (7.2m? / 4.333) by 60 or 65% and divide by 225k from symphony to get how many more times sales we need to break even? Need 12x more. Not quite that easy because as sales increases so does cost of sales. Right now, the cost of manufacturing exceeds the sales revenue so the more sales the larger the loss. This is accounting artifact due to underabsorption of fixed costs in the plant, since some costs like depreciation are static while others like labor and materials change with volume. I don't think two quarters are enough to take an intelligent guess at those cost dynamics; given the relatively low volumes I think something like four to six quarters of data is needed. This is aggravated by the big Q4 write off in 2015 so a lot of costs going through the P&L in 2016 and 2017 are at zero when in fact those items will have a positive cost when they need to be replaced (i.e. items carried at zero accounting cost will be used up at some point). Something similar happens with sales and marketing expense; as sales increase so do support costs, commissions, and so forth. My best guess on cash flow break even is somewhere around 15,000 scripts per week, but given the limited data on which to estimate the actual number is probably in a range of 10,000 to 20,000.. At that level sales will generate a positive gross profit because of better manufacturing cost absorption, and positive gross profit will start to cover general, administrative, sales, marketing, and R&D expenses. Don't forget that growing sales also requires growing accounts receivable and inventory, both of which require cash and which are only partially offset by accounts payable. There are a lot of moving parts and it is impossible to forecast them accurately with a handful of reported numbers.
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Post by matt on May 31, 2017 9:18:56 GMT -5
Yes, you can just take the last column off the spreadsheet that Liane updates weekly for the last date in each quarter. Liane's spreadsheet is week to week so the cutoff dates don't match exactly with the accounting cutoff dates, but a few days shouldn't make much of a difference.
Prior to Q4 2016 there was a mix of Sanofi and Mannkind product, phasing in of MNKD sales force, etc. so I figure those numbers are not comparable to later periods:
Q3, 2016
Per Symphony $2,215 As reported 10Q $553 Ratio 25.0%
For subsequent periods the numbers should be comparable:
Q4, 2016
Per Symphony $2,350 As reported 10K $1,322 Ratio 56.2%
Q1, 2917
Per Symphony $2,322 As reported 10K $1,196 Ratio 51.5%
So between Symphony and accounting, there is about a 45% discount. In other words, for each $1 million reported by Symphony expect that Mannkind will report around $550 thousand in revenue from commercial sales. As sales grow, that discount percentage should shrink. For example, freight from Danbury to the distributing pharmacy is a certain amount, but if ten times the product is shipped in the future the freight cost would still be there but it would be less than ten times. Most pipeline costs will exhibit similar increases in efficiency as volume grows.
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Post by matt on May 30, 2017 13:33:31 GMT -5
We have to give Mike a chance, he has had the job for a total of six hours or so, but there is also a need to be realistic. The company spends $7 million a month and takes in substantially less than $1 million in revenue. Eventually that math catches up with the ability to keep moving forward. There are ways to delay the day of reckoning, but Mike will have to hit a few quick home runs to make it happen. Batter up.
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Post by matt on May 30, 2017 12:06:56 GMT -5
Let's just get this on record shall we? Matt, do you believe that Mannkind is going to announce bankruptcy in the near term (1-3 months?) In 1-3 months it is hard to say. In 1-2 months, the answer is almost certainly no. In 3 months, that changes to a maybe. The wild card is how things go over the next two months on their ability to pad the cash balance, however they manage to do it. A company cannot declare bankruptcy and hope to exit with a confirmed Chapter 11 plan unless they have enough cash on the balance sheet to see them through the pendency of the case. Once a company files they essentially become a cash business, having to prepay certain expenses, like utilities, and having to pay other vendors cash on delivery, plus there are extraordinary legal costs that didn't exist before. Declaring BK with no cash left is sure way to wind up in a Chapter 7 and an immediate liquidation; nobody wants that. The outside law firm is no doubt giving the board the same advice and if the cash gets too close to zero the board will have to file if they want a chance to reorganize. When exactly does that happen? If the latest cash burn figure is $7 million, and a Chap 11 case takes at least 4 months, then the company need a reserve of $28 million in operating cash plus $10 million for legal expenses, or a total of $38 million as a minimum cash balance at all times. The cash won't reach that minimum number until mid-August assuming the $10 million in debt due in July is swapped for shares and the entire Mann Group credit line is used. Any material increase in sales pushes the date further into the future. If the company does a successful rights offering (which will require shareholder approval to increase authorized shares) the date gets pushed further. If the authorized shares are increased, there can be a PIPE transaction in the market and the date gets pushed further. If there is a licensing deal with up-front cash, the date gets pushed further. A lot can happen in the next two months to boost cash and those events are hard to anticipate and even harder to quantify. Absent anything contributing in a significant way to the cash reserve, August 14 is a day to watch. A lot of law firms like to file BK on the same day they file a 10-Q since all the disclosures are up-to-date as of that filing and it lessens the initial paperwork for the case. I have seen several companies file the 10-Q followed immediately by an 8-K announcing the BK filing.
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Post by matt on May 30, 2017 10:33:30 GMT -5
I dont read this news leading to bk. You'd need an experienced financial person to lead the company through that process. MNKD would hire a outside company, no? An outside company to do exactly what? There are restructuring companies that specialize is keeping companies out of bankruptcy, and if it comes to that, those same companies are usually engaged by the estate to find a buyer or to conduct the auction for the pieces. Companies are required to file a "first day memo" which outlines for the court the company's view on what happened and why they wound up in court, and most of those memos disclose six months or more of involvement by a work-out firm trying to avoid bankruptcy. Nobody has mentioned it, but Deerfield may have a hand in this as well. When a company is insolvent (and legally MNKD meets the definition of insolvency in Delaware) the board has a fiduciary obligation to the corporation, not necessarily the shareholders. The board may feel that the time has come for them to take actions that protect the interests of creditors, even if that is to the detriment of shareholders, to avoid legal liability, and Deerfield might have been agitating for some action. These things all happen quietly behind the scene so there is no way to know for sure.
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Post by matt on May 30, 2017 9:06:28 GMT -5
When the parachute contracts were updated a few months ago, it was evident that something might be up. The board might have done a discreet search for an outside replacement and finding nobody highly qualified that was willing to take on the job, Mike was the logical alternative. The learning curve to be CEO of a public company is brutal, and doubly so for a company in financial distress, so wish Mike lots of luck. It will be a long summer for him.
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Post by matt on May 30, 2017 7:36:47 GMT -5
Deerfield is an investment fund with a fiduciary obligation to their investors, same as any other financial intermediary and for that reason they can't "play nice" unless they have no other option. The entire purpose for the subordination and the $25 million covenant is that Deerfield gets first dibs on any asset, and they are guaranteed that the company will have at least some cash they can grab as well. From Deerfield's perspective the deal was all about having somebody else backstopping the deal, and it didn't matter if that "somebody" was The Mann Group, a bank, or some other deep pocket so long as Deerfield could assert their preferential claims.
This is a deal that has gone sideways for Deerfield, just as it has for many investors. They hoped to get their debt back and make a little extra money on the convertible feature and other sweeteners. That doesn't look like it is happening so their job now is to at least break-even on the debt piece. When a lender insists on others subordinating in order for them to stay in the deal, it means they are starting to worry about default and as a lender it is their job to worry about worst case scenarios.
You are correct that how this plays out in the coming months will be interesting. I suspect another share for debt swap is in the works, maybe for the whole $10 million and maybe $5 in cash and $5 in shares or something like that. Regardless, Deerfield is going to get paid on time one way or another as the company will not want the debt to go into default since that starts to trigger cross-default provisions and rapidly deteriorates into a forced bankruptcy declaration. Crunch time will come late in the summer and Matt has about two months to figure it all out. Lets hope he is getting better advice than Aegis.
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Post by matt on May 29, 2017 7:55:03 GMT -5
Why is everybody convinced that the unidentified Middle Eastern country is the UAE given that the company has not even hinted at that? Given the history of the company, wouldn't Israel be a more likely candidate than UAE?
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