Recent Posts

Shipping does not take a month on the water.  I used to manage a portion of the international logistics for a large healthcare company and our longest sailing time was around 12 days which was sufficient to get from Singapore or Malaysia to California.  Japan was about 8-9 days, Europe from the east coast to Antwerp or Rotterdam was around 5-6 days.  Brazil is about a 10 day sail from Miami, add 1 or 2 days for more northern ports.  Those are sailing times so you have to add on the time to dray the container from the origin to the shipping port and from the destination port to the final destination.  Drayage can add just a few hours or several days depending on the ports.

The reason not to fly the shipment is simply cost.  Air freight is calculated two ways, one by actual weight and one by dimensional weight, and the customer pays the higher of the two.  If you are shipping something extremely heavy, like machine parts, the customer pays based on actual weight.  If the customer ships something that is very light but bulky, the carrier imputes a hypothetical weight based on the cubic volume of the box so that the belly of the aircraft is not full of low value but bulky cargo.  There are also concerns with temperature management on an aircraft because gel ice packs will only last for so long and that might not be long enough to get the product onto the plane, fly it to the destination, clear customs, and make final delivery.  The alternative that works well is dry ice, but when you ship that way the package is off-gassing carbon dioxide fumes the entire flight and releasing CO2 into an enclosed aircraft cabin is problematic for the health of the crew so dry ice quantities are severely restricted.  On a ship, they can simply attach a refrigeration unit to the container.

On balance, when shipping high-value perishable commodities (like Afrezza) most companies will opt for air.  Often the key is to partner with a good freight forwarder that can mix products on a single pallet to minimize the dimensional weight problem.  We were the number two customer for one large air freight forwarder, but the number one customer was Caterpillar Tractor.  They would air ship lots of heavy engine parts due to the cost of down-time on a piece of construction equipment, so the forwarder would stack our low weight but bulky medical products on top of their heavy and dense machine parts.  We paid less than the dimensional weight for our portion and Caterpillar paid less than the actual weight for their portion so everybody was happy. 

Mind you that this takes consistent volume with the major air carriers and we shipped several hundred tons of air cargo every month (we were also FedEx's number three customer worldwide after Intel and HP).  MNKD will not have that kind of volume and may not be able to avail themselves of specialized services from the freight forwarders and carriers; in that case ocean freight may be their best or only realistic option.

BIOMM is a bit of a different story than Sanofi. In the case of BIOMM, they are a true distributor so the initial order was to fill the warehouse and to have some stock to begin retail distribution. Sanofi was a marketing partner and given the structure of the US drug distribution system, Afrezza could launch in the US with very little inventory in the supply chain. Getting product into Brazil and cleared through customs can take a while.

It will take a while to get to the endos that serve private pay patients in Brazil. There BIOMM will be competing against the same RAI insulins as in the US, and will also have to compete with the "Farmacia Popular", a group of government-owned and subsidized pharmacies that provide diabetic supplies to patients for free (all the products at the Farmacia Popular are locally manufactured, no imported products are included). Competing against "free" will be a challenge except for some very wealthy patients since outpatient drugs are generally not covered by insurance in Brazil. The good news is that the Lilly and Novo products aren't covered by insurance either so it will truly be a head to head competitor on price versus patient benefits.

It is time to fish or cut bait on Afrezza.  Five years post-launch there really is no excuse for scripts that number under 800 per week.  Yes, Sanofi was not an ideal partner, and yes, insurance coverage stinks, and yes, Lilly and Novo will do everything they can to maintain their market share in prandial insulins.  That is the competitive market in which MNKD operates and none of this should have been a surprise to anybody that understands how the real world works.

Afrezza has proven to be a money pit and continues to be a money pit.  Either sell it for whatever it will bring or abandon it.  I know the thought of abandoning the product is anathema to most readers that struggle with diabetes or know somebody that does, but the only alternative (other than selling it) is to continually subsidize the treatment with your stock purchases.  Growth is far slower than it needs to be for this to be a economically viable product in the market.  That would be a shame to lose the drug, but Afrezza would not be the first superior product to fail in the market.

If you think Technosphere is the future, then reposition the company into drug delivery since there has been some success with that strategy.  That requires a complete rethink of priorities and taking an axe to a lot of corporate spending, including the executive team.  A small but nimble drug delivery company looks very different than the Mannkind of today.  To address akemp3000's question, yes I have been CEO of an emerging biotech and have had to make the hard decisions when I was put into the job, but the results were worth it in the long run.  The process is not nice, it is not painless for the current employees, but a realistic assessment of what the viable options are is sorely needed.  Most of what are proposed as options are nice to think about, and are even well-intentioned, but they are not viable in the highly competitive pharma world.

Bankruptcy has not been on the table so it is hard to say that it has been taken off.  So long as a NASDAQ traded stock has adequate daily volume it can raise money selling shares into the market, and MNKD still has plenty of volume.  Of course in the long-term bankruptcy is never off the table for any company (you can ask GM and some other former blue chips about that), but I am talking short-term risk.

What remains is the overhang of toxic debt.  MidCap, like Deerfield before them, has the leverage via their covenants to make life miserable for the company and management.  They can, in theory, call their debt when a covenant is missed which would trigger a bankruptcy event, but they would never do that unless the circumstances were extreme.  They can make far more money by granting waivers for covenant misses and extracting a pound of flesh each time so it is never in their interest to put a borrower in that situation.  A loan shark will never kill a customer, but they are happy to rough them up a bit to remind them that it is time to pay.

So bankruptcy was never on the table, but the effects of the toxic debt instruments have never gone away.  Until MNKD has a fully-recapitalized balance sheet with minimal debt and can operate at a cash flow break-even level, they will not be the masters of their own fate and the valuation will not reflect the true economics of the business.

I think that explains it pretty well.  Reverse splits tend to depress the stock price by more than the split ratio implies (likely due to information effects) just as forward splits tend to increase share prices.  Whenever there is a run-up in share price without fundamental changes in the business, the temptation is there for the short players to jump in.

Right now the price is not so high as it was a few years ago (and certainly not when it got pushed up to $6) so there are plenty of better targets to short in this market.  Just because short interest in MNKD is not going up does not mean that the shorts have gone away; they have found somebody else to pick on for now.

Certainly the competition is mainly with RAA, mainly Humalog, Novolog, and FIASP.  However, with Lilly and Novo getting sick and tired of being blamed for high prices that are due mainly to the high rebates paid to the PBMs, the manufacturers have started to cut rebates and price a monthly supply at $99.

While that makes perfect sense for Lilly and Novo to do that, it creates an even larger price disparity with Afrezza.  Since MNKD cannot cut the price for Afrezza to $99 for a month's supply and still make money, low penetration will continue until the price difference goes away or at least shrinks to a less significant amount.  Can Afrezza compete at a 100% price premium?  Maybe, but anything more than that and the patients will push back.

That was not disclosed.  In the industry the gross margin passed to the distributor is directly tied to the level of risk assumed by the distributor and the quantity and quality of the services provided.  I have see distribution agreements that were little more than light warehousing and trucking agreements (no sales and marketing effort) that went for as little as 4% of sales, and I have seen full service agreements that included pretty much everything but the manufacturing that gave 45% of sales to the distributor.  As each deal is structured somewhat differently, it truly depends on the contract.

That said, there are few agreements where the local distributor agrees to handle all selling, marketing, promotion, and regulatory activities for less than about 30%.  Typically when introducing a new specialty product the operating expenses are 35-40% in the first year or two, declining as the product gets traction in the market.  While insulin is not your typical specialty product, given the high cost Afrezza is not garden variety injectable insulin either so the required marketing expense should be more similar to a high-cost specialty product than to a generic drug.  On balance, Biomm is probably getting 30% of sales (plus or minus 5%) or else they have set themselves up to fail.

To address another question above, distributors do not pay royalties.  Royalties are paid when another entity uses proprietary technology to manufacture a product, and that is not what Biomm is doing.  In manufacturer-distributor relationship the manufacturer simply recovers their profit from the sale of goods.  There can be other incentives built into the deal (i.e. a sliding price scale that increases or declines with volume) but that is less typical for distributors since their costs are mostly variable, and sometimes the manufacturer will eat some of the launch cost either directly or by discounts on the first few shipments.  All of those arrangements are proprietary and rarely get disclosed.