My risk side analysis has irritated many and I've been accused of all sorts of bashing. This post isn't different, so if you're wanting to read opinions involve unicorns and rainbows, skip this post.
I have to start by saying - the first serious challenge to MNKD as a company producing a product for sale and how many self proclaimed "true longs" are bailing ship already? This is a story (yes, a story since I like to tell stories) about human nature and it’s playing out right in front of our eyes. I’m not writing this to “help” anyone. I’m writing this for me as yet another opportunity to articulate why I do what I do and why I’m successful doing it. If somebody else benefits from it, whatever. If not, whatever still. Either way, take a look at my previous posts here and on YMB and you’ll read a history of asking questions, drilling down on the risks to my investment, and utter avoidance of the kool-aid train. Some important disclaimers – still long, always have been, have never shorted MNKD (rarely short in general, just not my thing), and I’m neither surprised nor afraid of the recent rout in the stock price.
The GoodAfrezza. Afrezza itself requires a statement under “good” if not GREAT. It works really well. It’s a paradigm shift, small footprint, easy to use, doesn’t work “too well” but does the job. Reduces the daily shot count. Works very fast with superior characteristics. With plenty of websites and posts dedicated to explaining the why behind all aspects of how afrezza is superior that you can read at your leisure, I’ll leave it at that here as the "great" side of this investment is trumpeted over and over.
Afrezza is in fact for sale. While you just shrugged saying “no duh”, it’s the underpinning of my investment in MNKD and the only reason why I’m here. I’m not here for technosphere or the hope of a buyout. I’m here for afrezza, and, it’s finally on the market.
I view the current sales situation as good (and bad). The good side is that MNKD and SNY are finding out right away what the challenges to selling afrezza really are. That’s good. I’d much prefer this situation to develop now and not 6 months from now. I’d much rather see slow sales up front due to challenges than slow sales 6 months, 1 yr from now after pissing tons of cash away on DTC and other marketing efforts that would/might flop. The fact that sales are trending lower than exubera on a week over week basis for the last 3-4 weeks now tells me that this is the low point – it can’t get any worse than this imho. I view that as a potential positive. The execs at SNY in charge of afrezza sales have no choice but to get downright medieval on this situation. This is a war and it’s time to see what we engaged SNY for. Time for SNY to pony up, bring the A game, and get serious. I believe that it can only get better from here.
I view MNKD’s balance sheet as a good – and let me explain. Yes, their balance sheet actually sucks. However, when taken into the bigger perspective, they have enough juice to get through the next two years (yes, some analysis behind that, but, it’s my analysis. Do your own and come to your own conclusions here). Analysts always make a big deal about events like MNKD faces this August ($100 million in convertible debt), however, it usually doesn’t involve taking the company down and neither will this event. Come august this will be behind MNKD.
I view the posters on social media as good if not great. But I have to qualify that with – as long as it’s true and not just investors posting bogus results. This, however, is part of the long game and will pay dividends later on (later this year and definitely next year).
Script data. SNY listed sales of afrezza at 1 million, not as bad as the sound bite media world we live would would make it seem given that it covers about 7 weeks and that was the initial 7 weeks of sales. However, somewhere it stated that sales were between 500k and 1.5 million. What that means is that for a company like SNY with billions in sales each quarter, they either don’t know, don’t care, and more likely – don’t need to care whether sales of afrezza was 500k, 1 mil, or 1.5 mil – it’s too low to care. It’s like when regular people do their taxes – whether it’s 1 dollar and 20 cents or 1 dollar and 25 cents….doesn’t really matter now does it?! However, if I take it at 1 million and do some basic script vs price/script manipulation on my spreadsheet, I conclude that the script numbers we’re getting are low and might be more like double what we’re hearing so far. I’ll put that into the good column for now and tweak as we get more info going forward.
The Bad
Sales have started off slow (real or perceived) which has now been confirmed by SNY’s 1 million rev collected for 1st quarter 2015 which included sales starting about Feb 3rd and the quarter ending March 31st. While this rev number makes for interesting conversation, it pretty much tells us nothing at this stage other than sales haven’t done much. Media is talking about "first quarter sales" which makes it sound much worse than "7 weeks of sales", but, so goes the world of sound bites. There’s no color to add regarding price per script or how many scripts have actually been sold to patients. SNY did not provide any meangingful insights into doctor acceptance, how many samples have been distributed, or additional details on what they are doing, why they are doing it, how they are doing it – nothing. We’re left to our own imaginations here for the time being. While I did take the 1 million rev number and adjust scripts and price per script to come up with a different trend line, what it told me was that it really doesn’t move the needle. When you’re in the ocean whether you’re at the very bottom or a few inches from the bottom, you’re still “at the bottom”. That’s where afrezza sales are at right now.
Exubera. That stupid f’ning drug that I now wish never existed is wrecking havoc in MNKD”s world. Pfizer dropped the drug too soon giving it the appearance of a complete failure. That followed by Lilly (in partnership with Alkermes) and Novo Nordisk (with Aradigm) quickly disposing of their inhaled diabetes drug programs and you have a perception that inhaled insulin is not going to happen. Right now and for the last few weeks Afrezza is tracking below exubera per IMS/Symphony script data. Given the numbers provided by SNY, while the scripts are likely higher (by double by my estimation), it still doesn’t get us off the bottom of the ocean.
This appears bad to downright ugly. I, however, believe otherwise.
Exubera part 2. I’m very annoyed that SNY and MNKD “appear” to have NOT learned any of the lessons from exubera. What happened to pricing? Insurance hurdles? Endo penetration? My goodness management people, what the frack are you doing? WE ALL knew about this. We’ve all been talking about this for years now. MNKD is on record as acknowledging these challenges years ago and YET….WHY…..ARE…..WE…..HERE?
? This is not only bad, it’s ugly in my book and if I could fire each manager with their hands on this situation at SNY, I….WOULD……My immediate fixes would be to reduce the pricing to below injectables – create a price war with afrezza leading the charge. Get away from endo’s – frack them. Go directly to PCP’s and the type 2 market. Get DTC up and running 24/7 like yesterday. Start creating a fever around afrezza, get everyone talking about it in a good way, start giving it away like there’s no tomorrow. Get everyone who needs it hooked on it, then work on pricing. My goodness……get with it people.
Lack of clarity from SNY. They aren’t going to talk to us about afrezza sales. It’s going to be quiet no matter what happens. They sell over 100 drugs (as listed on their website) and afrezza is just one of them. SNY makes their billions on injections and they are locked in a mortal battle with other injectables. The whole market is injectables and pills. This is all under my bad category until afrezza proves it’s making tracks into this space and changing the paradigm. This is not a given by any stretch. There are plenty of companies out there that need to make sure afrezza flops and make no mistake, they will do whatever they need to too see that happen. This is a major challenge. I would also add that the potential for SNY dumping afrezza is a concern - the pattern matches exubera in the sense that it was another CEO at pfizer that bought into exubera (just like it was another CEO at SNY that bought into afrezza), there was a drastic CEO change at pfizer (same as SNY) and pfizer was struggling with reduced sales pressure on it's primary drugs (just like SNY) requiring pfizer to refocus their efforts as a company. Exubera had a slow start (just like afrezza) and the excuses are already starting to fly for low afrezza sales albeit from MNKD. If you aren't watching this reality unfold, you are delusional. This is bad and might be ugly in another quarter or two if it doesn't change. More on this under "risks" in the ugly category.
MNKD – MNKD is now under my bad category. I knew before last week, but, it’s now beyond obvious. MNKD is not in charge of afrezza anymore. They have their selling committee and probably have some say and input over sales, but, clearly this is SNY’s product now. MNKD is about production, that’s it. MNKD won’t be talking about sales or pricing or DTC, that’s all SNY’s now. If that wasn’t clear to you, it should be now. I have MNKD under my bad category because they have no control over their destiny when it comes to afrezza sales. Since I’m invested in afrezza, what do I own with my shares in MNKD? I’m currently working this part of my investment thesis. Oh, and when everyone gathers for the annual meeting, you can and should ask all the questions. However, they will answer very few as it relates to SNY and their responsibilities which is just about everything that’s important to the sales of afrezza. Many people are going to come away from that event very disappointed. There will be no joy at MNKD’s annual meeting. You need to go to france for that conversation.
SNY execs. How many worked at Pfizer during the exubera debacle? Yeah, this bugs me. One could think that they have a mission to make inhaled insulin work out where it failed in the past, or, they could be minions without a brain. This is in my bad category until they provide themselves useful as it relates to afrezza’s success. So far…..not so good.
The UGLY
Wall street. They have this pegged, nailed. They are playing retail like a grand piano. GS and others knew darn well what was going to happen given the initial script sales being published. They knew and know exactly how to play this. And the funny thing is, it doesn’t matter whether sales pick up or not – either way, wall street wins (again). However, you have a chance at this exact moment to not let wall street win. Enough fear today? Feeling all crazy inside? Yeah, probably, especially if you have a serious amount of money invested. But if you know the risks and can put everything into a bigger picture perspective, short term stock price movements don’t mean much (up or down). Consider how many people get crazy when the stock goes up? And down? Forget all that noise and stick to the bigger picture. It won’t take but a bit of sales to stabilize the stock price. Any signs of patient/doctor acceptance on a larger scale and the stock price will rise. All that can happen toward the end of this year setting up 2016 as a pretty good year for MNKD stockholders. But wall street has a hold on it and it’s ugly. Know thyself, know your risks, and stay the course until YOU decide your thesis is done (good or bad). Don’t let wall street decide for you.
Exubera – that stupid f’ing drug…..see “bad” above. It’ll be fugly until afrezza shines through the dirt.
Stock price. No bottom in sight at the moment. For most of last year I was of the belief that MNKD was a buy below 2 billion market cap. Given the pressure and recent events, 1 billion MC isn’t out of the picture anymore. So, a stock price in the mid 2’s…….ugh! Could be a great buying opportunity but for those that are maxed out, it’s just fugly. Remind yourself why you’re invested and what the upside might be and whether you still believe the upside is likely. You’ll have to decide those answers for yourself.
The “quiet”. This was ugly, right up until MNKD did some talking last week confirming what we risk siders have been saying for weeks/months now – sales suck, are lower than hoped, insurance issues, endo issues, spiro issues……great. Just great. So, instead of talking about what we’ve all been wanting to here – technosphere, script count inaccuracies, insights into sales, insights into production, costs, etc etc what do we actually here about? We hear that everything sucks. Highly technical terminology, but, that’s the bottom line of it. I preferred it when they (MNKD) weren’t talking.
Risks. I view social media as much as an ugly risk as an amazing help. The risk side is what will happen when the competition pay a few people to have bad reactions to afrezza and post everywhere about it (with a little professional help by companies who specialize in using social media). Those negative media posts will get picked up by everyone because, that will be the plan by the detractors, and that’s all we’ll hear about. So what seemed like a major help, a bright spot, will quickly turn into our worst nightmare. I lay awake at night about this one. I view SNY as a risk – are they really interested in selling afrezza? We’ll know when/if they actually start the post marketing trials (not planning, not paper pushing, but actual trials that cost money/effort/time). We’ll know if they go for EU approval (which they have not yet). We’ll know when they start DTC….will it be nighttime adds at 2:30 am or will it be a full court press in prime time TV/radio? Collectively, this all just gets lumped in the ugly section till I get some clarity.
The ugly risk I see here is when will SNY make afrezza it's own?? So far, it appears like they are shyly testing the waters. I want to see commitment on all fronts. Til then, I'm concerned....
SummaryThe good hasn’t changed. The bad is being capitalized and blown out of proportion by wall street and doesn't change the "good". The ugly is still in SNY’s control and is as of yet, unknown to us. I’ll be watching, learning, tracking, and adjusting as we get more information. But my original thesis for investing in MNKD is still intact. I’ll hold and possibly add to my position if the SP gets down to around 1 billion MC levels.
The upside is just too good to ignore even if it seems dark as a black hole right now.