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Post by mnkdmorelong on Jan 13, 2016 13:03:26 GMT -5
COGS - my guess is it is likely be a bit higher then competing products today. It would be hard to fathom how it could be 50pct higher but when you take into account scale you're going to see some decrease over time. The second reason is insulin. Insulin, continues to see tremendous growth as a high margin product and sub-sector - in theory it should be cheap but because it has been continuously "improved" insulin producers have been able to re-extend patents for decades, inflating true costs etc - today, generic insulin has finally started to enter the market(lly) and so have more manufactures, most trying to solidify more market share (I believe this was part if not the crux of conflict between amphastar and sanofi). I have heard that insulin is almost as cheap to produce as water so the generic angle is clearly a major factor. BUT irrispective of the current price of insulin, Afrezza, as it stands today, may need to deliver approx 2.2 x more of it then subq's because of the variance of its bioavailability(which is almost twice that of exhubra) - the most underapreciated but economically important factor as to why afrezza is far more viable then its predescessor but another reason why it may be more costly then subq's at the moment. This is my logic not something that is widely discussed so it's hard to know exactly the difference - however, if afrezza uses or requires more insulin, it should benefit as insulin costs come down.... but bc insulin is one of the most profitable components of the sector, it has taken a longer time for generic insulin to even avail itself. The key may be in however or whatever ammendments can be altered with respect to our supplier at the moment etc especially going forward. My sense is that Al struck a strategic partnership with the newly assembled amphastar brand w roots back to Cal - so as always, reworked deals on the basis of survival should be viable. What do we know about the TS step? This is a a chemical process and must cost something. There is no equivalent cost in competing RAA. The dreamboat whistle has got to cost no more than a pen. Something tells me that both SNY and MNKD went to market with a premium priced product. They had no response when they got pushback from insurance companies. The no response may be caused by the high COGS. This may be the reason why SNY did not do the EU; prices there are even lower than here. If cost is the issue, MNKD has got to change. Qualifying a new insulin vendor is not cheap nor quick.
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Post by mnkdmorelong on Jan 13, 2016 12:10:07 GMT -5
sell to SNY @ cost. after everything said and done - equivalent to 25% royalty Thanks for the clarification. We can now crank some numbers: The best model to view financial reality is breakeven. Long term, profitability is important. Breakeven ensures that MNKD will live to fight another day. We know that at essentially zero sales, MNKD's share of the losses was $45 mln for three quarters ($60 mln FY). We know also that MNKD corporate is burning $90 mln/yr. As sales grow, they will incur a salesman' commission of approximately 10%. I assume this is captured in the 25% royalty rate. We can create an equation: one side will have cash burn ($60 +$90 mln). On the other side, we have cash flow: 25% of Sales multiplied by 0.5 to account for the price decrease. This yields $1,200 mln as the breakeven point for MNKD/SNY. This is year one. In subsequent years, the loss of $60 will be less. Let's try to create a go it alone model: Costs would be all on MNKD: $60 divided by 0.35 = $170 mln. Corporate burn would be the same at $90 mln. One side of the equation is $260 mln. The other side is 100% of sales multiplied by 0.5. This yield $520 mln in sales for MNKD to achieve breakeven. The go it alone model requires huge investment in a sales and marketing force. Is $170 mln cost for MNKD on go it alone valid. Many here chide at the huge cost SNY imposed on the partnership. Keep in mind that I have not included the safety study. These are my financial models. I know you guys don't like the way I crank the numbers because they tell a story you do not like to hear. If you have a better way, post it. Nobody caught my mistake. In the go it alone model, is not possible for cash flow from sales to be 100% Duh! I substituted the 65/35 split upon the 25% Royalty and came up with 0.46% of sales is cash flow. This means the go it alone model has a breakeven point of $1,130 mln, about the same as the MNKD/SNY deal. What is going on here? I think what the numbers are telling me is that Afrezza has a high COGS.
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Post by mnkdmorelong on Jan 13, 2016 10:35:01 GMT -5
This is very interesting. Did Matt say they were selling to SNY at 85-90% GM? This would be a profit center. Then at the back end, MNKD earns about 25% on the 65/35 split. Or does the 25% include the selling of Afrezza to SNY profit center? sell to SNY @ cost. after everything said and done - equivalent to 25% royalty Thanks for the clarification. We can now crank some numbers: The best model to view financial reality is breakeven. Long term, profitability is important. Breakeven ensures that MNKD will live to fight another day. We know that at essentially zero sales, MNKD's share of the losses was $45 mln for three quarters ($60 mln FY). We know also that MNKD corporate is burning $90 mln/yr. As sales grow, they will incur a salesman' commission of approximately 10%. I assume this is captured in the 25% royalty rate. We can create an equation: one side will have cash burn ($60 +$90 mln). On the other side, we have cash flow: 25% of Sales multiplied by 0.5 to account for the price decrease. This yields $1,200 mln as the breakeven point for MNKD/SNY. This is year one. In subsequent years, the loss of $60 will be less. Let's try to create a go it alone model: Costs would be all on MNKD: $60 divided by 0.35 = $170 mln. Corporate burn would be the same at $90 mln. One side of the equation is $260 mln. The other side is 100% of sales multiplied by 0.5. This yield $520 mln in sales for MNKD to achieve breakeven. The go it alone model requires huge investment in a sales and marketing force. Is $170 mln cost for MNKD on go it alone valid. Many here chide at the huge cost SNY imposed on the partnership. Keep in mind that I have not included the safety study. These are my financial models. I know you guys don't like the way I crank the numbers because they tell a story you do not like to hear. If you have a better way, post it.
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Post by mnkdmorelong on Jan 13, 2016 9:56:33 GMT -5
Actually, I think that I know the answer anyway, but I'd still like Matt to put the answer out there regarding competitive pricing. It was Matt, himself, who let slip over a year ago that the Sanofi 65/35 split was the equivalent of a mid-20% royalties deal. Anyone who knows how to reverse-engineer the numbers can use that comment of Matt's to calculate that Afrezza is manufactured at about 85%-90% profit margin. This is very interesting. Did Matt say they were selling to SNY at 85-90% GM? This would be a profit center. Then at the back end, MNKD earns about 25% on the 65/35 split. Or does the 25% include the selling of Afrezza to SNY profit center?
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Post by mnkdmorelong on Jan 13, 2016 9:49:13 GMT -5
mnkdmorelong -
Regarding your comment that, "Nobody expects MNKD to do all this work on their dime with an API that does not belong to them." You are absolutely correct. My remarks were intended for FDA-approved non-branded (generic) API being developed by MannKind.
Development of an API patented by another company should, of course, be developed "one their dime". I should have been more clear that I was talking about the two API of pain and pulmonary hypertension that the company recently disclosed are in the pipeline.
MNKD does not have the money to pursue pain and pulmonary hypertension a la TS on their own. They need a partner. If somebody brings in an API to be ported to TS, this too would be a joint development program. Deals will be different for the two sets above. But, they should have been cut last year. IMHO.
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Post by mnkdmorelong on Jan 13, 2016 9:37:05 GMT -5
MN, this is an excellent question that I like to know the answer most. I will dial in today and I will put your question as my top question list. The question to you is how we can search this kind of answer if the question is not got answered during this call. Al commented about the pricing of Afrezza before and he said it would be competitive to the injected version. If MNKD to cut the retail price by 50% like many suggested, do you think it will have any profit margin left for MNKD? The way you phrased the question will put pressure on Matt. A better phraseology is: If MNKD cuts the retail price by 50% like many suggested, will the smaller gross margin change MNKD's go to market strategy. Meaning, do you have reduce channel costs by not having a partner?
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Post by mnkdmorelong on Jan 13, 2016 9:04:00 GMT -5
I have made no conclusions; I make inferences from actions. It has been over a year since the SNY deal and there is no TS deal. If companies were chomping at the bit to get into TS, something would have happened already. You seem to forget that it was only recently that MannKind Corporation started its pipeline development after suspending pipeline activities following the 2nd CRL in 2013. Setting aside the time that it took for the API-selection process (for which management hired a consulting firm) you make it sound like simply turning on a light switch at a retail store with a neon sign flashing "Open" for business, with all your 2016 models on display in the store window.
If you want to attract a pharmaceutical partner, simply saying, "Hey, you can inhale this stuff!" just isn't going to cut it. You had better have some solid pre-clinical data and statistics related to unmet medical needs on hand to negotiate with. This is the kind of activity (action) that management was referring to when they stated that they have about 30 employees working on pipeline development.
Finally, your remark of "something would have happened already" is woefully oblivious to the possibility that many things are happening already. Hakan Edstrom recently stated that API(TS) discussions are active and that MannKind will have updated information on its API(TS) partnership activity by the end of Q1. Hakan originally stated by the end of the year, but immediately corrected himself, saying, "sorry, the end of next quarter". (I suspect that Matt will make some disclosures today, simply to prevent class-action lawyers from being able to use Hakan's comments against the company. If Matt updates TS partnership activity at the conference today, he will have fulfilled Hakan's "promise" to deliver a partnership update.)
It's frustrating, from shareholders' perspective, that MannKind Corporation is not disclosing details about all actions that are occurring related to its pipeline development. That doesn't mean that nothing has or is happening.
Deals in any walk of life follow a certain timing pattern. Similar to dating; either it goes to the next level or it doesn't. The first post on this thread is what a TS deal should have looked like and entered into last year. It's a joint development agreement with no promises. A potential suitor must pay for MNKD's time in development. All the preclinical testing is done under the agreement. Nobody expects MNKD to do all this work on their dime with an API that does not belong to them. Certainly today's meeting would be perfect to announce a TS deal. But it should have been preceded by a press release this morning which did not happen. It looks like the best we can get is an update. But updates do not pay the bills.
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Post by mnkdmorelong on Jan 13, 2016 8:29:28 GMT -5
I agree with @iam2sekc4u2002 about asking CEO Pfeffer to explain MannKind's future plans. Unless I'm mistaken, Matt cannot yet disclose Sanofi's commercialization plan for Afrezza because the non-disclosure provisions remains until the effective termination date, which appears to be April 3, 2016.
However, Matt certainly can and should state that the company plans to remove the premium price placed on Afrezza in order for it be competitively priced with RAA insulin. Only we need to be prepared for the likelihood that, because of the Sanofi NDA provisions currently in effect, Matt may not be able to talk about whether management has had disagreements with Sanofi's pricing policy or payer reimbursement efforts or even talk about how Sanofi erred with its U.S. commercialization strategy for Afrezza. The 2X+ pricing of Afrezza vs. other RAAs is a huge impediment. I would ask Matt if competitive pricing of Afrezza necessitates a go alone strategy. This means that there is not enough in the gross margin apple for two people to take a bite.
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Post by mnkdmorelong on Jan 13, 2016 6:33:16 GMT -5
TS's value is it's unique features. It is an inhaled excipient that enables drug molecules to be absorbed through lung tissue. There is high vascularity in the lung (for obvious reasons) which allows a TS enabled drug quick access to the blood stream. Also different forms of drugs can be used; example: Afrezza is a lower molecular weight insulin that give rise to it's fast in and fast out feature. What drugs can benefit from these features? Pain meds? Epinephrine? Is speed all that important? The failure of Afrezza points to the ugly possibility that people don't want to inhale their drugs. TS has value; but it has fallen with the entire Afrezza franchise. We should know more tomorrow.
Mnkd and Afrezza have not ran into problems because people don't want to inhale their drugs... Ive talked to many people with diabetes and not one of them has mentioned any concern about that and in fact were anxious to try it .. The problems with Afrezza are directly related to the label and FDA restrictions ... being unable to differentiate our product .. lack of public awareness ..lack of support by medical professionals..... lack of knowledge about what Afrezza is .. Sanofis failure to start superiority studies... etc etc etc...
How important is the label? Is this holding Afrezza back? Posters on this Board do not realize that the ambit of the label goes no further than the drug company. The FDA controls how the product is made, the label, and how Afrezza is marketed. The FDA has no control over the docs who can say whatever they want about Afrezza. Or prescribe it in any way they think is appropriate. The FDA has no control over the patient who acts on "off label" information he or she received from her doc or from the web. You don't see the FDA shutting down Sam Finta's web site or any other website even though the information is off label. The FDA will shut down fraudulent website; But Sam and others are just telling their story. I and many others thought that Afrezza's rapid on and rapid off feature is a killer app that diabetics would rush to get a hold of. Clearly this has not happened. Sam Finta is an early adopter. How long will it take the great diabetic masses to use Afrezza if at all. My hope is once the price is "right-sized", diabetics will give Afrezza a shot.
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Post by mnkdmorelong on Jan 12, 2016 21:21:01 GMT -5
What drugs can benefit from these features? Pain meds? Epinephrine? Is speed all that important? The failure of Afrezza points to the ugly possibility that people don't want to inhale their drugs. TS has value; but it has fallen with the entire Afrezza franchise. I think you are seriously jumping the gun on your conclusions. I have made no conclusions; I make inferences from actions. It has been over a year since the SNY deal and there is no TS deal. If companies were chomping at the bit to get into TS, something would have happened already. We should know more tomorrow.
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Post by mnkdmorelong on Jan 12, 2016 20:47:33 GMT -5
In his responses to comments. Got it! George is pissed!
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Post by mnkdmorelong on Jan 12, 2016 20:24:41 GMT -5
Rho's gone off the deep end. Talking about "forces colluding to harm mnkd" and that there is a cabal to be arrested. Weird really. I didn't read that.
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Post by mnkdmorelong on Jan 12, 2016 20:19:42 GMT -5
Quite. $7.5M would be worth a month to MNKD. Management would certainly be hoping for larger amounts, maybe that's possible, maybe not. But there are a few distinct positives here and parallels to TS. First, this is for a class of compounds that has not been tested in humans. Those suggesting the value of TS is zero because there is no approved product should take note. This particular undeveloped opportunity might be worth $50-100M or so in a speculative sense. TS is suggested to have 4 or more of these in the works. Second, cash burn is a critical issue for MNKD. This deal includes development funding, the amount is not disclosed, but securing the same would be a key issue to extending the operating window for MNKD and lowers the amount of capital that would need to be raised. This is further helped if some of those milestones could be reached in the first year or two. Lastly, some suggest that because Afrezza has not succeeded so far commercially, that no one would partner a TS deal. Well, Arena's only commercial product is Belviq, which has not done so hot. Arena is pursuing a strategy of targeting 'GPCR' receptors with their compounds. Belviq and these new compounds for CNS receptors hail from a similar concept, but interest obviously remains. TS's value is it's unique features. It is an inhaled excipient that enables drug molecules to be absorbed through lung tissue. There is high vascularity in the lung (for obvious reasons) which allows a TS enabled drug quick access to the blood stream. Also different forms of drugs can be used; example: Afrezza is a lower molecular weight insulin that give rise to it's fast in and fast out feature. What drugs can benefit from these features? Pain meds? Epinephrine? Is speed all that important? The failure of Afrezza points to the ugly possibility that people don't want to inhale their drugs. TS has value; but it has fallen with the entire Afrezza franchise. We should know more tomorrow.
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Post by mnkdmorelong on Jan 12, 2016 20:05:32 GMT -5
MNKD is like a baseball phenom who came on the scene having a 100 mph fastball. The kid was sure to succeed and was worth a lot. Today, the same kid is 30 yo and everybody can hit his fastball that has degraded to 88 mph. His baseball worth is far lower and consequently investors have shied away. As I have written before, the key to the NPV analysis is how fast can Afrezza sales rise due to a price decrease. This is guesswork which means the NPV model for Afrezza is guesswork. Even using the early adopter model, neither Exubera nor Afrezza gained early traction. Perhaps inhaled insulin is not a "gotta have" product. As for TS: What company will want to burn a billion dollars in drug development after seeing the Afrezza and Exubera debacle? There is value to Afrezza and TS. It will not be $5 ps. You are comparing to a pitcher who has been in the majors for how long? Afrezza hasnt evem been on the market 1 year. And again. Pulling numbers from out of thin air. How did you arrive at your figure? Magic? My baseball analogy was to highlight why Afrezza is worth less now than at the beginning. If MNKD spent over a billion to commercialize Afrezza, why would this not be true for another drug using TS?
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Post by mnkdmorelong on Jan 12, 2016 19:43:58 GMT -5
The up front payment of $7.5 mln would not put a dent into MNKD's cash needs. Time is of the essence; MNKD cannot wait for milestone payments or royalties. MNKD may trade later payments for more up front cash.
But I agree that the ARNA term sheet looks like what MNKD would fetch in a TS deal.
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