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Post by mnkdmorelong on Jan 7, 2016 12:30:39 GMT -5
"Losses in the first year was about $50 mln. We know this from MNKD's losses. Afrezza prices will go down; we know this; meaning gross margins go down. Inhaled insulin cost more to make then injectables; we know this. MNKD is burning $90 mln/yr. Danbury is not right sized to benefit from operating leverage. Given all this, what would your estimate of breakeven be? I came up with $500 mln." First of all, your starting point is just plain wrong. MNKD's share of losses in the first nine months were approximately $45 million, I don't recall the exact number and it doesn't really matter. Given the 65/35 distribution, the $175 million figure is far more reasonable for Afrezza-related losses than $50 million. Second, your comment about gross margins going down is also wrong. If sales increase from $10 million to $175 million, the margin will undoubtedly increase, even with the price cuts, factoring in the fixed production costs that would be spread over more units sold. Third, I don't understand your comment about Danbury not being right sized to benefit from operating leverage. Will rent, insurance, heating, and myriad other operating costs increase if sales increase from $10 million to $175 million. Some might but many many won't. So, obviously MNKD would benefit from operating leverage. Fourth, as I've said many times, given the many many unknowns, trying to generate a breakeven estimate is almost an exercise in futility. The fact that you moved so quickly from $300 million to $500 million is testament to that. In 20 minutes, you might come up with $750 million. How much value do any of these numbers have. That said, I believe the numbers I provided in the previous post strongly suggest that a breakeven is far lower than $500 million, even though my numbers should obviously be given a wide berth. I thought MNKD reported gross losses through Q3 of $14 mL? If it was $45 mLn, it makes it worse. It means total losses abut $135 mln. Your estimate of $175 is better. There is no way that cutting ASP by over 50% will yield an increase in gross margin. I thought you had experience with business models? The purpose of this thread was to estimate breakeven point. It may be difficult and have a large error. But some people want to know. By knowing the magnitude, we have some insight into what MNKD is thinking now. Given all this, I think my estimate of $500 mln is still better than your $175 mln. Keep in mind Danbury burns $90 mln/yr regardless of how much Afrezza is sold.
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Post by mnkdmorelong on Jan 7, 2016 12:03:02 GMT -5
Yes.
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Post by mnkdmorelong on Jan 7, 2016 12:01:39 GMT -5
>Greg: I suspect you have never created business models. How can you say that losses in the first year is $175 mln and then say if sales were $175 mln, losses would be small. For each script, the salesperson gets a commission. The cost structure of sales and market has fixed and variable components. The purpose of my post was to offer up a model based on what we know already. Flailing about like what you are doing accomplishes nothing. You want me to come up with a breakeven number of 50k users. Sorry, this is not possible. Just for the record, I've "created business models" almost daily for the better part of three decades. Anyway, moving on from the many gratuitous shots you were able to inject into your short comment.... For simplicity's sake, let's say sales were $10 million last year and the venture lost $175 million. That means expenses were $185 million. Right?? Now if sales were $175 million, meaning that SNY's efforts were a lot more productive than they actually were last year, overall costs would largely go up the increase in COGS. What do you thing gross margins are for drugs in general? The answer, as I'm sure you know, is in the neighborhood of 90%. Okay, to be conservative, we'll say the gross margin is only 80%. That means overall costs increase by $35 million. So, with sales of $175 million, the loss would approximate $45 million. If you factor in the huge operating leverage inherent in the pharmaceutical industry, we wouldn't need a huge increase in revs to get to breakeven. You may want to complicate the picture of clinical trial costs, but, then, you also have to subtract all the costs associated with launching a new product, samples, for example, and all of the introductory activities. As to coming up with a breakeven number for 50k users, I don't recall asking for one. I do recall saying we have toooo little information to come up with a meaningful estimate. Losses in the first year was about $50 mln. We know this from MNKD's losses. Afrezza prices will go down; we know this; meaning gross margins go down. Inhaled insulin cost more to make then injectables; we know this. MNKD is burning $90 mln/yr. Danbury is not right sized to benefit from operating leverage. Given all this, what would your estimate of breakeven be? I came up with $500 mln.
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Post by mnkdmorelong on Jan 7, 2016 11:49:25 GMT -5
>Greg: I suspect you have never created business models. How can you say that losses in the first year is $175 mln and then say if sales were $175 mln, losses would be small. For each script, the salesperson gets a commission. The cost structure of sales and market has fixed and variable components. The purpose of my post was to offer up a model based on what we know already. Flailing about like what you are doing accomplishes nothing. You want me to come up with a breakeven number of 50k users. Sorry, this is not possible. can u post rough draft of that $500 mil? I posted it last night. You can find it. In my first pass, I estimated MNKD needed $300 mln/yr to breakeven. After mulling it over, I thought it was too low and raised it to $500 mln. The post solicits ideas from others on this Board. Obviously hating on a model because it does not return the number you like makes no sense.
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Post by mnkdmorelong on Jan 7, 2016 11:26:43 GMT -5
>Greg:
I suspect you have never created business models. How can you say that losses in the first year is $175 mln and then say if sales were $175 mln, losses would be small. For each script, the salesperson gets a commission. The cost structure of sales and market has fixed and variable components.
The purpose of my post was to offer up a model based on what we know already. Flailing about like what you are doing accomplishes nothing.
You want me to come up with a breakeven number of 50k users. Sorry, this is not possible.
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Post by mnkdmorelong on Jan 7, 2016 11:13:49 GMT -5
I did some computations last night and I estimated that MNKD needed to get Afrezza sales up to $500 mln/yr to break even. SNY priced Afrezza over twice that of Aprida, another prandial. We know that pricing must go down so let's use the Aprida number of $3.14/day per diabetic. Crank the math and you come up with 450k Afrezza users per year to achieve breakeven. This is very possible given the market size. But we're less than 10k now so there is a lot of road to travel. However, if Afrezza stays as a niche product, it will be difficult to grow to this size. What would keep it a niche? Spirometry, fear of inhalation, the great unknown, smokers, docs hating on it. I am assuming that once the price is lowered, Afrezza gets Tier 2 rating everywhere. you will have to take 35% of that if you still are basing on SNY/MNKD partnershsip and you are waay offf and SNY might have bben charging a lot of personnel to JAC.. international expansion studies and blah blah and they dont come to cheap...in big pharamaa...cut all of that dead weight and recalculate please My model is based on MNKD having its own distributional resources. That was factored (estimated) into the $500 mln/yr estimate. We don't know if SNY was sandbagging the numbers. If anything, there is more costs in the future for the safety study and DTC. If a new partner were found then the break even point goes up. But MNKD avoids the cost of building a sales and marketing operation.
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Post by mnkdmorelong on Jan 7, 2016 10:54:53 GMT -5
to break even assuming MNKD can price similar to other injection type products? Does anyone have idea? I did some computations last night and I estimated that MNKD needed to get Afrezza sales up to $500 mln/yr to break even. SNY priced Afrezza over twice that of Aprida, another prandial. We know that pricing must go down so let's use the Aprida number of $3.14/day per diabetic. Crank the math and you come up with 450k Afrezza users per year to achieve breakeven. This is very possible given the market size. But we're less than 10k now so there is a lot of road to travel. However, if Afrezza stays as a niche product, it will be difficult to grow to this size. What would keep it a niche? Spirometry, fear of inhalation, the great unknown, smokers, docs hating on it. I am assuming that once the price is lowered, Afrezza gets Tier 2 rating everywhere.
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Post by mnkdmorelong on Jan 6, 2016 21:01:45 GMT -5
There are many on this Board who know the sales numbers quite well. I need your help.
What is underway now at MNKD is number crunching. Maybe we can peek into their world.
The follow scenario is predicated on MNKD going alone in marketing Afrezza. If a partner was found, they would share the profits and generally make it more difficult for MNKD to attain cash flow neutrality.
The current run rate of Afrezza sales is about $20 mln/yr. MNKD's loss for year 1 (9 months) was about $15 mln; implying a full year total loss of $57 mln for the enterprise. This loss included large training costs, typical RA costs, very little DTC, and nothing for the long term safety study. If MNKD lowers Afrezza prices by half, naturally losses would be greater if sales do not rise materially above $20 mln/yr. How much would sales have to rise for Afrezza to be cash flow positive? It seems to me that sales need to be $150 mln to make Afrezza work with lower prices.
We must then bring in Corporate MNKD who is burning cash at $60-80 mln per year. What would Afrezza sales have to be to cover these expenses also? My estimate is $300 mln/yr.
Is $300 mln/yr Afrezza sales possible? A year ago, this was a $1 bln/yr opportunity so the answer is yes.
The final and biggest question is how long will it take to ramp up to $300 mln/yr and now much cash does MNKD need to get to that point?
My guess is 3 years and $200 mln.
What are your guesses?
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Post by mnkdmorelong on Jan 6, 2016 18:09:46 GMT -5
The current HQ is in the same building as the Mann Foundation. They had to get out of Valencia.
They had the SH meeting this year in Danbury. It was a festive event with MNKD hats (give-aways), lots of drinks and breakfast treats, etc.
MNKD HQ should be in Danbury.
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Post by mnkdmorelong on Jan 6, 2016 14:32:07 GMT -5
Right now, the SNY reps have been told to not hump Afrezza. I don't think MNKD has another partner lined up quite yet. The SNY contract was dated Aug 2014 and it took six months for the launch to take off. This is normal pacing of business in the pharma business. Can it be expedited? Yes of course. But not that much. I see a lull in marketing activities for the first 6 months of 2016. No forward progress. Keep in mind, MNKD does not have the resources in place to service the market. If they were to start hiring today, It will take 6 months for the troops to start performing. Other than Desisto, who in his right mind would join a company with one foot in the grave? If MannKind signs an agreement with an established pharma company "today," why would it take 6 months for that pharma's troops to start performing? MannKind doesn't need to hire anybody -- it just needs to make a deal with another company that will put some effort into marketing Afrezza. Like all drugs, Afrezza is a technical sell. SNY started to train their troops 1.5 months before launch. It would take some time for the new marketing department to get all their ducks lined up. New graphics, brochures and such. They have to figure out the compensation plan. Just to write, review and sign the contract will take a month. It's always complicated.
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Post by mnkdmorelong on Jan 6, 2016 14:19:06 GMT -5
The real hangup between MNKD and success is marketing/sales. SNY represents traditional biopharma marketing/sales. High cost; but guaranteed access to the doc and end user. I hope to see MNKD use another marketing channel. A low cost channel such that Afrezza can be priced low. Think of what Amazon did to retailers.
Using this new channel, I think MNKD can go it alone and control their destiny.
But....they still need financing to get them over the hump.
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Post by mnkdmorelong on Jan 6, 2016 14:09:28 GMT -5
Your concerns are legit, but is your vision tunneled? IMO, MNKD has many more options at there disposal. I want to think you are right. Back in 2014, MNKD's cash dwindled down after AdCom. But Afrezza won the Adcom and was soon granted FDA approval. Affrezza was the fresh face and we all knew money to refill the coffers would come soon. Today, Afrezza is no longer the fresh face and will not fetch a young ingenue's price. Moreover, the cost to support Afrezza will soon be on MNKD. The cash burn that is now $10-15 mln/qtr will soon balloon upwards.
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Post by mnkdmorelong on Jan 6, 2016 13:00:47 GMT -5
Right now, the SNY reps have been told to not hump Afrezza. I don't think MNKD has another partner lined up quite yet. The SNY contract was dated Aug 2014 and it took six months for the launch to take off. This is normal pacing of business in the pharma business. Can it be expedited? Yes of course. But not that much. I see a lull in marketing activities for the first 6 months of 2016. No forward progress. Keep in mind, MNKD does not have the resources in place to service the market. If they were to start hiring today, It will take 6 months for the troops to start performing. Other than Desisto, who in his right mind would join a company with one foot in the grave?
I know that the Afrezza Luddites will accuse me of bashing. No, its a reality check. There is a lot of heavy lifting that must be done soon.
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Post by mnkdmorelong on Jan 6, 2016 10:00:46 GMT -5
There are some assumptions there, but many of those are based on experience. (I work in the legal field). First, the jurisdiction would be in the U.S. The agreement was for U.S. rights, with options to continue on to other countries (which never occurred). So, the venue where the damages took place would be in the United States, thus a U.S. trial. It's why Genzyme filed their lawsuit in Manhattan. Second, you don't have to introduce evidence from another case. Where do you get that? You compare Afrezza to Lantus, Toujeo, or Praluent to make your points that it was starved of resources compared to other Sanofi drugs. The price was set by Sanofi, true. But a lawyer worth his salt could make the argument that the price was the primary factor in limiting sales and was set at a price that prevented it from market saturation. You explain that as the marketer, Sanofi had a responsibility to make every reasonable effort to market the drug appropriately and that setting the price point at a level that killed sales violated that stipulation of the contract. Civil trials are not like criminal ones. You don't have to prove anything beyond a reasonable doubt. All you have to prove is that Sanofi, more likely than not, failed to provide Afrezza with the resources and effort to make it commercially viable, as they promised. One look at TV/print/internet ads for their other products, insurance coverages, and their efforts at doctor education, and it's a slam dunk, at least to me. You'd be surprised how many attorneys would take a corporate breach of contract case with no retainer or fees until settlement. I'm content to keep waiting for my MNKD payday, just like I've waited for the past four years. It hasn't arrived. I could have sold in the 11's after the partnership but I didn't. Hind sight is always 20/20 but I still think there is intrinsic value in TS and Afrezza that hasn't been tapped yet. I have no specific experience with such cases but I wouldn't have thought that there would be many firms capable of handling a case like this willing to take it on a contingency fee basis. The costs and personnel commitment will be astronomical and, despite the puffery in this thread, recovery is not certain, at least as far as we can judge from our distant perspective. Assuming Sanofi breached its obligations under the contract, its very likely they covered their tracks very carefully in order to give plausible explanation for every decision they made. Let's face it, it's extraordinarily unlikely that Sanofi left itself openly and obviously subject to a breach of contract suit here.
If my assumptions are correct, then the real evaluation of the strength of the case can only happen after discovery is conducted. In turn, discovery can (generally) only be conducted after suit is filed. If there's a case against Sanofi here, it will almost certainly be established and proven primarily through document discovery of Sanofi's intra-company e-mails and memoranda-documents which cannot be obtained without first filing suit and undertaking the necessary discovery efforts to get them. Because a firm will not be able to adequately evaluate the case before some discovery is conducted, it is unlikely, in my opinion, that a firm would be willing to undertake the commitment of representation, knowing that thousands of man hours will be spent on the case, even if Mannkind agrees to cover costs and expenses of litigation.
Finally somebody with some sense! This Board is full of emotional investors who just want to get back at SNY for alleged failures to market or do their job. Lawsuits are not like Perry Mason (I am dating myself) who with a flourish presents a surprise witness at trial and wins the case. Far, far, from reality. Discovery is a powerful tool. But it is a procedurally driven plodding method to extract information. Think of an army platoon on their bellies crawling towards a target who is shooting at them. MNKD should focus on not going out of business before Afrezza blooms.
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Post by mnkdmorelong on Jan 6, 2016 7:54:03 GMT -5
Thanks for the link. NY State laws will be used. But what is the jurisdiction? One can sue in France using NY State laws. This may sound perverse but an Order from a NY court may not enforceable in France. Look for another part of the contract that speaks about this. He just told you what the jurisdiction would be as per the contract, New York. You want to find something in the contract that speaks to it, look for yourself. You're claiming that they could reference law in the United States to file suit in France? Using that logic, could one file suit in NY referencing French law? Not to my knowledge. I'm afraid it doesn't work like that. It's why there are courts in other countries. You file suit there if you want to claim damages. Now you're just trolling. You're looking for an excuse to argue and are not offering up any valid points of discussion. If you read carefully you will see my point. Jurisdiction is not the same as what laws will be used to interpret the contract. If you cannot understand this, I cannot help you.
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