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Post by matt on Nov 9, 2016 10:33:53 GMT -5
The loan facility with Sanofi is still on the books at $71.2 million. That has to be repaid eventually and I don't see that going away.
As to the question posed by therealisaching, the difference between $573K and $1.6M is probably a few things. Firstly, IMS and Symphony report RETAIL sales of drugs while Mannkind reports WHOLESALE amounts. To the extent that pharmacies and distributors still had Sanofi labelled product on the shelves, these would show up as retail sales but Sanofi is the one that booked the wholesale transaction. Likewise, the retail prices reported by Symphony include the markups from the pharmacy and distributors, but Mannkind reports the wholesale price to the first participant in the supply chain.
The other difference is what is known as the gross to net adjustment. This is a very complex area of accounting in the industry, but suffice it to say that retail prices shown by Symphony can differ substantially from the revenues reported for GAAP accounting. A lot of people on this forum have been cheering use of the "co-pay cards", but those are just a mechanism to discount the drug, and Mannkind is the one who incurs the economic penalty of the discount. Co-pay cards help the patient reduce their drug cost, but the card is a direct dollar-for-dollar hit to Mannkind's revenue and cash flow.
Similarly, if an insurance plan agrees to cover Afrezza chances are that they will not be paying the full retail price, but some lower amount. Symphony reports the retail sale, but the insurance company is made whole for the negotiated price by a rebate paid at the end of the quarter which is deducted from Mannkind's gross wholesale transactions to arrive at net sales reported to the SEC. Most drug companies have entire departments dedicated to calculating the rebates due insurance companies and pharmacy benefit managers; it gets that complicated. The rebates are how larger drug companies make sure that their drugs are on Tier 1 formularies which the competitors are on Tiers 2, 3, or 4. If, for example, a PBM has an exclusive deal to carry only Lilly or Novo insulins on Tier 1 then Lilly and Novo enforce that buy paying out the rebate only if the PBM delivers something like 95% of all insulin scripts during the year. Since the PBMs make most of their money off the rebates, that is why they enforce the formulary restrictions so strictly.
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Post by matt on Nov 9, 2016 8:24:49 GMT -5
Decriminalizing small amounts of pot in states that tend to lean liberal is one thing, proclaiming that marijuana will be the savior of MNKD is something else. Afrezza is a drug regulated by the FDA, and marijuana is still a Schedule 1 drug along with other drugs of abuse. Has anybody thought through the blowback that will result at the FDA for participation in a marijuana project, or how MNKD can even benefit from it?
One of the biggest problems pot dispensaries have is that they are denied use of the banking system because the origin of their money is illegal, and they are likewise denied any deductions on their federal tax returns (i.e. they can't even deduct rent or payroll) due to the drug connection, while most illegal businesses are allowed deductions. If RLS makes milestone payments to MNKD, which will need to be in cash, how is that going to help the company if they can't deposit the money? It will take a change in federal law to alter the landscape, and that is a ways off.
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Post by matt on Nov 8, 2016 16:25:23 GMT -5
Certainly these 2 new jobs are very interesting... Just to play the devil's advocate... Are any of these positions required for bankruptcy filing at all? No. When a company files for bankruptcy then technically they are still subject to SEC reporting, but generally the SEC accepts the monthly reports filed with the court in lieu of full filings. At any rate, there are plenty of temp firms that specialize in BK filings so no need to fill a permanent position just to get the paperwork out the door.
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Post by matt on Nov 8, 2016 14:01:44 GMT -5
I think they just reused an old job requirement text to this new posting I think you are probably correct; writing good job descriptions is a pain in the rear but a necessary part of managing. While everybody is wondering where they are going to get the money to pay for this position, a better question might be what happened to the previous occupant of this job? Corporate controller of a public company is normally a decent gig that pays pretty well so the natural attrition rate is low.
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Post by matt on Nov 7, 2016 16:50:09 GMT -5
This may seem like an uncharacteritically optimistic post, but at this share price, financing at terrible terms is baked in. Any indication that things are not so dire could lead to an influx of hot money. I am not 100% sure what you are saying here. If the company already had a financing arranged, they would have been obligated to disclose it in an 8-K within four days. Whatever else you think about management, they do seem to be 100% compliant with their SEC mandated reporting which would lead me to conclude that any financing is not done and dusted. In particular, there is so much market perception riding on the election that I doubt many investors have been signing up for private placements in the last few days. If the deal has yet to be done, pricing cannot have been set so there is going to be movement south from today's close because those putting up the money will want a discount.
The one option that could be possible, and I think I mentioned this elsewhere, is that Sanofi pre-pays the insulin put in exchange for some consideration. Sanofi is going to have to pay the put one way or another, but paying now with interest rates essentially at zero is not a big deal for them, so the only question is what can they squeeze out of MNKD in exchange. It could be MNKD agrees that the sales partnership is 100% over, both sides have fulfilled 100% of their mutual obligations (except the Sanofi note repayment), and that neither party will file for arbitration; that would eliminate a potential management headache for Sanofi. I don't think Sanofi is at risk of losing anything in an arbitration proceeding, not even a penny, but they would still have legal fees and management time dedicated to swatting away the gnat so a stand-still agreement has some value. Even so, given MNKD's balance sheet if there was such a deal it too would trigger the same four day filing requirement as a financing and we have not seen an 8-K since September.
At any rate, we will all find out a lot of things in the next 24 hours.
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Post by matt on Nov 7, 2016 11:55:46 GMT -5
There are lots of people that would jump at the chance to take this job. Yes, those of us that follow MNKD closely know that the financial situation is precarious, but most people looking for work don't bother to pull a balance sheet on their prospective employer unless they have a financial background. Arguably it is not wise to interview for a job without knowing if your new employer will be in business six months from now, but it happens all the time.
This is doubly true for people with a manager or senior manager title that want to move up to a director level. Even the job is short-lived, that employee's resume will forever reflect that they have done director level work for a publicly traded healthcare company. The fact that a company is acquired, has to downsize, or goes bankrupt shortly after the person is hired is not a reflection on employees at this level. It is pretty much a win-win situation for the employee, especially if they are unhappy at their current job.
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Post by matt on Nov 4, 2016 17:05:59 GMT -5
There are a number of ways to estimate refills, and I don't know that one is particularly more or less correct than another because I don't have the data to validate it either way. Of the few plans that do cover Afrezza, most are quantity limited. While 90 day fills from mail order pharmacies are almost always the most economical not all patients can or should be on 90 day scripts. It should also be cumulative so some of the patients exhausting their available refills each period were placed on Afrezza back when Sanofi was handling the marketing, and most people don't count those either even though Sanofi does deserve some credit.
Bottom line, the drug has been on the market since February 2015 and now it is November 2016. Regardless of how you choose to estimate refill rates, the TRx number should be substantially higher than it is. Far more patients have tried Afrezza and dropped it than there are patients who tried the drug and remain active users. When you have an elephant in the room it is best to acknowledge that there is a large gray mammal stomping about, not to worry about exactly how much the beast weighs. Regardless, you are going to get squished unless the elephant is brought under control.
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Post by matt on Nov 4, 2016 12:20:19 GMT -5
If financing is secured for 2017, what guarantee we have scripts will increase, let alone break even? They haven't laid out a plan (a successful one) that monitors progress with multiple contingency plans. The concern is not just because scripts are kinda low. They are extremely low. Basically nonexistent. While the total number of scripts and revenue is below what is needed to demonstrate Afrezza is a going concern, the "nonexistent" label oversimplifies and distracts from more quantitative analysis that is available. Perhaps now that the coverage situation is improving, Mannkind will be able to justify more reps in the field. Assuming the new reps work at same efficiency, doubling the number of reps will double the number of new scripts and revenue at double the cost. If production costs remain fixed per volume, this will more than double the profit(or reduce time to profitability). Increase reps according to the profitability prediction curve. At some point the reps can be let go = cost savings etc etc. Of course the forgoing assumes you have a superior product and virtuous market. More salesmen doesn't address the other part of the equation and that is loss of refills. If you look at the data that Liane updates weekly, the refills this week were less than 50% of the total scripts 13 weeks ago (roughly a 90 day fill). Adding resources to increase new scripts only makes sense if Mannkind can hold onto them. When Sanofi dropped the partnership they cited the loss of 65% of patients between the original prescription and the refill date, and if Mannkind is somewhere above 50% loss of patients that implies there is a lot of work to be done with patient satisfaction.
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Post by matt on Nov 4, 2016 10:52:50 GMT -5
1. There has been some progress on insurance, but not nearly enough. So long as companies like Lilly and Novo make package deals across their full line of insulins in exchange for preferred placement on the formulary, Afrezza will never get covered on the major plans regardless of price. Having a single product in the form of a rapid acting insulin but no basal insulin to bundle is a major hurdle to getting favorable PBM coverage.
2. Competitors talking up their products and talking down another product is called doing business. If you need an example ask any Ford salesmen whether you should buy an F150 or a Chevy Silverado. Competition is not going away. If Sanofi didn't exist there would still be Lilly and Novo to deal with, and frankly, they are both way better at marketing than Sanofi.
3. There are long-term health concerns that have not been addressed to the satisfaction of the medical community. Until that happens, some physicians will choose other products.
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Danbury
Nov 4, 2016 10:42:16 GMT -5
Post by matt on Nov 4, 2016 10:42:16 GMT -5
I'm more curious to know about the inventory that MNKD said SNY would return at the end of the third quarter. Has it been returned? How much was there? Is there any way to use it? Inventory has to be properly labelled with the name of the manufacturer and other details. So long as the inventory was not expired and is suitable for relabeling, it can be used subject to QA inspection and rerelease.
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Post by matt on Nov 4, 2016 8:54:02 GMT -5
All the large health plans offer many different choices, which is why you can find Afrezza on some Kaiser formularies and not others, and same for ExpressScripts, CVS/Caremark, and others. If your employer doesn't mind paying the bill in order to keep the employees happy, then the PBM will fill the drug since they get a fixed fee for the filling and paperwork, plus they recover the actual price of the drug from the employer.
Essentially, it is the employer that is dictating the formulary rather than the insurance company or PBM, and this is common with self-insured employers who skew toward a younger employee population because they have lower costs. Employers with older employee populations cannot be so generous because they bump up against the "Cadillac Plan" tax because they have higher average costs.
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Post by matt on Nov 3, 2016 17:11:59 GMT -5
Execs are still actively working on Sanofi. This is the biggest wild card. Could that explain why they don't seem to panic about the runway? There was no layoff recently - a sign of confidence given declining scripts 2 weeks in a row. Execs will update label change in the ER CC. Rose has been in Danbury (East coast) for several weeks. Matt has been travelling. Don't know the reason. Of course there was no layoff. Absent a financing event, MNKD's option is to make Afrezza break even or to die trying. You can't layoff employees one week and then hire them back the next like you were running a McDonalds (and I don't even think McDonalds can do that).
The label chance is nice, but make no mistake, to get the magnitude of the changes MNKD needs will require a comprehensive FDA review. Things can always move faster, but if FDA decides to take the full six months to make a decision nobody should be surprised.
As for Sanofi, there is not much leverage for MNKD. Most pharma companies are run by relatively nice people, and I think Matt may be able to get Sanofi to prepay their share of the insulin put, but that is something Sanofi has to pay sooner or later. Even if MNKD does wind up in bankruptcy, Amphastar will file a claim for the unpaid insulin purchases and the trustee will file a claim against Sanofi for their 65%. Prepaying it now costs Sanofi the time value of the money, but with interest rates so low that is literally pocket change for the likes of Sanofi and they have probably already reserved the liability on their balance sheet. In short, Sanofi can be nice guys and pay it all now or they can be jerks and pay it over time per the contract. No reason not to be done with it.
As a bonus upside, Sanofi can insist on an indemnification provision that prepayment of the insulin put settles all obligations to MNKD, now and forever, related to the marketing agreement. MNKD buys a few more months of runway with the prepaid cash, and Sanofi is assured that they will never hear from Matt P. ever again. I would suggest that is a win-win situation. MNKD can't win an arbitration agreement with Sanofi, and Sanofi will not have to incur the legal expense of telling MNKD to piss off. The loser in that scenario is Amphastar who is left holding the bag if MNKD can't pay, but unless Sanofi was incorporated into the supply agreement as a disclosed third party beneficiary and guarantor, that is too bad for Amphastar. Sucks to be them.
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Post by matt on Nov 3, 2016 16:36:59 GMT -5
My guess is that they will tell us they are considering several options and offer no specifics on raising cash. They have to be very careful of what they say, and don't say, at this point. Considering options plays into the hands of vulture financiers because they can just wait it out, teasing with term sheets, but never intending to consummate a deal prior to a bankruptcy. Management cannot make statements that are too positive, lest they open themselves up for a 10(b) lawsuit, nor can they be too negative or omit statements for the exact same reason. Vague illusions to discussions with undisclosed parties, even if true, play into the hands of class action lawyers.
If I were in their shoes I would consider presenting the Q3 operations as they are reported and end the call without further discussion or questions. I know that seems like the coward's way out but at this stage of the game they don't have a lot of choice unless they have a major announcement that is ready to be disclosed during the call. If they are still a few days away from making an announcement, is anybody going to care if they end the week with good news instead of doing it on the call itself?
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Post by matt on Nov 3, 2016 14:16:13 GMT -5
At some point I forecast that if the Cubs won the World Series then Afrezza would become a blockbuster drug, and to be consistent, I will stick with my forecast. However, before you take out a second mortgage on the house remember that I forecast that the Cubs would win from at least the early 1980's. Maybe buy some puts with that expanded long position.
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Post by matt on Nov 2, 2016 16:53:20 GMT -5
My only concern is a back door deal, BK where they bid on the assets, or something else that kicks most of us to the street, but not them. Those are common shares, right ?? I'm not sure that would work. My understanding is that the various Mann entities own plain vanilla common shares and, as such, have no more rights than any shareholder that owns just 1 share.
However, the issue as we all know is the need for cash to keep operating, whether in or out of bankruptcy. If a company is BK, it can obtain what is known as "debtor in possession (DIP) financing" with the approval of the court, and that debt becomes a priority claim (i.e. one that takes precedence over all other claims except certain items specified by law). A DIP financier can agree to give up rights to repayment in exchange for all of the common stock in the reorganized company, allowing the cash to be used to pay off creditors and effectively wiping out the existing common. However, if somebody wanted to play hard ball and grab Afrezza there are better, faster, and cleaner ways to get rid of the other shareholders while keeping the key creditors happy. What is clear is that no matter what happens those parties who put in significant "new money" can control the case, to the detriment of those who don't contribute cash. If the Mann entities don't or can't pony up new cash, they will have the same fate as all other shareholders.
As the company gets to a more critical point in their financing, the leverage goes to those with money. As time passes it will be increasingly hard to persuade an entity to contribute serious cash to run the company in exchange for a percentage of the ownership, when they can just wait some weeks or months until bankruptcy becomes inevitable and own 100% of the company free of debt and other claims. That is why next week's earnings release will be important as that will give us a good look a the balance sheet, burn rate, and remaining credit facilities. Unfortunately, the vultures will be looking at the same figures and drawing their own conclusions.
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