Sep. 19, 2014 2:23 AM ET | by Sean Chandler | about: amd
AMD's earnings report is on October 16th.
AMD has rallied ahead of earnings for four out of the last five quarters.
There are still reasons for investors to anticipate a beat, and this could lead to another small rally ahead of earnings.
Why would AMD rally again?
Stability from the PC
As mentioned above, AMD's poor post-earnings performance has been driven by problems within the PC sector. However, last quarter, AMD managed to show sequential stability within the PC market and lifted its computing solutions revenue by 1%. While this is nothing to be proud of, it was the first time in the last four quarters that didn't show rapid decreases in PC revenue. AMD has recently released a variety of competitive computer processors in the mobile space and it has even engaged enterprises with its A10 Pro Series APUs, starting with HP. I believe that seeing continued stability within this sector will please investors, and such an expectation could create anticipation among investors.
(click to enlarge)
Unexpected improvements outside of the PC
The sectors outside of the PC, such as semi-custom, pro-graphics, and embedded have led to some impressive lifts in AMD's revenue over the last year, and there have been some good signs of improvements. AMD has improved its market share in pro-graphics, its attained more embedded design wins, and the gaming consoles are selling well beyond expectations. AMD's engagement in these sectors started as a result of its plan to restructure its business, so these are all relatively new areas that have produced some unpredictable revenues.
In addition to altering power consumption or clock rate, Intel's custom design arm offers enterprise clients to add instructions, pins and signal logic to their chips. But Intel still doesn't support customization of x86 logic units. This could be a predicament for large clients who - even after paying a premium price for Intel's x86 - wouldn't be able to tailor their chips as per their exact needs.
ARM, on the other hand, allows full customization of its designs. And since AMD will be licensing its designs going forward, it will be offering custom-designed ARM chips to its clients in turn. Sean White of AMD noted last month:
"There are more and more of (dense server) applications that are showing up in big data centers. They don't want traditional high-end...database type workloads…If you want to customize an SoC to exactly what you want, or to put on a piece of your 'intellectual property,' you can do that in here."
The increased level of customization provided by ARM would allow large web-serving companies to tweak their chip designs as per their application needs - something that maximizes application-specific performance/watt metrics. Most enterprise clients wouldn't be too interested in utilizing their chips' iGPUs for instance. Since the microserver segment is more about optimization than raw speed, AMD's ARM offerings will have a good chance of succeeding in the segment.
Sep. 18, 2014 12:54 PM ET | by Piyush Arora | about: amd | includes: armh, intc
AMD Seattle will sport 64-bit ARM cores.
ARM's customizability and lower ASPs should work in AMD's favor.
Seattle can ward off competition from Xeon D.
It's a well-known fact that Advanced Micro Devices (NYSE: AMD) has lagged Intel (NASDAQ: INTC) in the high-performance retail and server chip segment over recent years. The latter's repeated use of the industry's latest chip fabrication techniques and performance-driven designs have collectively had a grueling impact on AMD. But the chipmaker's upcoming ARM-based (NASDAQ: ARMH) Seattle server chips, slated for a year-end mass release, could turn the tables around for AMD.
To begin with, the market for ARM-based server chips is largely untested. Calxeda tried to carve out a niche market for itself with such 32-bit ARM server chips, but it ran out of business back in 2013 before it could make a dent on the industry. One of the main reasons for its collapse was that data center companies simply didn't want to limit their capabilities to a 32-bit ARM environment - having Cortex A9's bandwidth limitations - that was yet to prove its mettle in the server segment.
But the collapse of Calxeda doesn't necessarily stipulate that the market for ARM-based servers is non-existent. ARM chips are generally designed as power-efficient chips. Large datacenter operators pay millions in annual electricity charges, and thus power-saving measures in the arena are always welcome. In fact, Google (NASDAQ:GOOG) (NASDAQ:GOOGL) and Facebook (NASDAQ:FB) have reportedly been mulling over moving a portion of their server load to ARM servers.
Their performance intensive tasks may continue to be carried out by Intel's high-performance Xeon offerings, but relatively less CPU-demanding work load like web serving, account management or data storage can be shifted to ARM-based power-efficient microservers. It's sort of a large-scale big.LITTLE stack, featuring Intel x86-64 Xeons and 64-bit Cortex-A57-based AMD Opterons.
AMD's upcoming Opteron SoCs are designed to compete in the low-end server market, yet they house some of the latest tech. For instance, Seattle chips sport eight 64-bit Cortex A-57 cores clocked at 2GHz or higher, with an overall low TDP of 25W. Moreover, the new platform supports the next-gen DDR4 memory standard - about 60% faster and 40% more power-efficient than equivalent DDR3 modules. These would stack AMD competitively in the rapidly-growing microserver market.
Transparency Market Research estimates that the global microserver market will reach $30 billion in size, representing a rapid 43.4% annual growth rate from 2013 through 2019.
For world’s second largest computer chip maker AMD, India is the number one market as far as strategic importance is concerned as the company sees more opportunities for growth here than even in a market like China.
“From purely revenue perspective, Indian market is among the top 10 for AMD, but from strategic importance, it is right up there… India has a huge potential, bigger than even China in terms of where the market is going to go and investments. So from strategic importance, I will say India is number one,” David Bennett, Corporate Vice-President and General Manager (APAC and Japan), AMD, told The Hindu.
In the APAC region, which includes Korea, Australia, New Zealand, Southeast Asia, along with India and Japan, India is the fastest growing market for the company.
“In all my markets not only is India an important market for us in terms of size and potential but also in terms of where we are succeeding. We have had some of our largest success here in India. We are doing extremely well,” he said.
In India, the company has 36 per cent market share in the commercial segment, and around 18 per cent share in the consumer PC segment. Incidentally, 36 per cent share in commercial PC segment is the largest for the company among all its markets. For the consumer segment, the chip and graphic card maker is looking at increasing its share to 25 per cent by next year, and then gradually to 30 per cent.
“Last year, a good chunk of our business came from big public tender. But if you take them out, because they skew the ration, we are pretty even in commercial and consumer space. So you’ll see both consumer and commercial increasing outside the public tenders. Our goal is 50:50. We want to be the first region in AMD to achieve this,” Mr. Bennett said.
Talking about opportunities they see in India, especially with government’s projects like Digital India, “We are quite bullish about PC sales. We are committed to continue investments in commercial PCs, double in our core businesses like consumer graphics and diversifying our revenues. We have new line of businesses — embedded semi-custom servers for products like Sony PlayStation and Apple Mac Pro — these are our way forward in India,” he said.
By Kenneth Fick, InvestorPlace Contributor | Sep 18, 2014, 1:35 pm EDT
Advanced Micro Devices (AMD) is looking to circumvent its market juggernaut competitor, Intel (INTC) through diversifying into higher margin businesses and cutting expenses. AMD has been working on a turnaround since 2012, and with a backwind on its core processing business, AMD looks like it may be on track to turn the corner next year.
AMD: Restructuring Plan
Click to Enlarge
At the end 2012, AMD found itself needing to re-align resources to more productive areas, divest under performing assets and make certain assumptions about future prospects. AMD’s processors were inferior to its rivals’, revenues were in free fall and AMD’s stock price dropped to under $2 a share.
To right the ship, AMD put forth an aggressive three-phased turnaround strategy: Reset and restructure; accelerate and execute; and transform to win.
Phase 1 – Reset and Restructure
By the end 2012, AMD’s business had shrunk to the point that costs were dramatically misaligned with revenues. To fix this problem, AMD’s first phase began with rightsizing the company.
AMD cut headcount of between 20% – 30% and entered into a sale-leaseback of its facilities. So, AMD’s operating margins stabilized going from a negative 20% in 2012 to a positive 2% in 2013 and nearly 6% on a trailing-12-months basis as of last quarter. This is a far cry from the 12-13% operating margins produced in 2009-2010 but is enough to buy time as AMD executes its restructuring plan.
Phase 2 – Accelerate and Execute
With the time afforded by the cost savings initiatives, AMD shifted its focus from a market it was impossible for them to dominate in, the production of central processing units, to focusing on the development of graphics processing units.
It's clear that MannKind is a company attempting to re-brand itself. What was once a "clinical phase biopharmaceutical company" is now establishing itself as a "corporation specializing in innovative pulmonary delivery technologies." For many biotechnology companies these two areas tend to overlap; drug development and technological improvement. However, while MannKind may well continue to develop their own drug candidates in the future, it seems clear that they are focused most intently on licensing out their technology through multiple partnerships. This is made abundantly clear at the MannKind Technologies website, where the tagline is "Your Drug, Our Delivery." There is no lack of clarity there.
So while the company is clearly optimistic about the prospects of Afrezza, it appears that Afrezza is just as much a proving ground for the technosphere technology as it is an innovative treatment for diabetes. This has been made clear in recent company statements, such as those of Matthew Pfeffer broken down earlier in the article, and in the constant updates and improvements to the MannKind Technologies website. Afrezza is just the opening scene. Technosphere is the multi-act production which follows it. The question is whether or not investors will stick around long enough to see the full play unfold. For those who do, the final act and scene may be well worthy of a standing ovation.
MannKind: Seeing The Forest Through The Trees
Sep. 16, 2014 6:37 PM ET | by The Behavioral Economist | about: mnkd
MannKind appears to be a company intently re-branding itself as a biotechnology company first, and a biopharmaceutical drug developer second.
The unrelenting focus on Afrezza, and the corresponding partnership agreement with Sanofi, may be blinding some investors to the importance of the company's technosphere technology.
Through the lens of behavioral finance theory, and the underlying field of sociolinguistics, this article explores the possibility that MannKind wants investors to focus more intently on its technology platforms.
While Afrezza's approval, and concurrent partnership, are achievements to be celebrated, it is the the acceptance of, and the demand for, technosphere technology which may dictate future growth.
In this case, it's not just about "inhalable insulin." We've seen that before, and its commercial failure has become a staple of biotech folklore. It's about what makes this inhalable insulin, Afrezza, different. That is what this long term story is about, and that is what should dictate investor decisions. It's about the technology. It's about pocket size inhalers supporting patient compliance, and brilliantly engineered, small molecule, dry inhalation powder delivering drugs quickly, effectively, and safely. Think about it; without technosphere, Afrezza would be little more than insulin. So, isn't technosphere what the MannKind story is really about moving forward? This article believes so.
So, while there are risks associated with the technology, such as what the demand for it will be and whether the prescribing medical establishment will endorse it, the approval of Afrezza has largely de-risked the uncertainty regarding technosphere. The pharmacokinetics' are on par with the standard of expectation, and the mechanism of the technology, alongside its delivery, appear capable of being widely accepted. In fact, in many w
DESTINY BREAKS RECORDS ON PS4 IN NORTH AMERICA
Sony also saw a huge uptick in PlayStation 4 hardware sales during the game's launch week.
BY: EVAN CAMPBELL
SEPTEMBER 17, 2014
Destiny is the fastest-selling and most-played PlayStation 4 game ever in North America during the game's first week of release, Sony revealed today.
Sony also said that the Destiny launch drove the most PlayStation 4 hardware units in a week in North America since Christmas 2013. There was a brand new PlayStation 4 bundle introduced for the release of Bungie's shared-world shooter, which packaged a white console with the game.
In addition, there were over 11 million game sessions of Destiny on PlayStation 4. Sony also unveiled that the first-person shooter was the most-shared and most-broadcasted PlayStation 4 game during its first week in North America.
The records don't stop there for Destiny, however. Activision announced earlier today that Destiny is the best-selling new game franchise of all time, raking in more than $325 million USD during the shooter's first five days of release. The Bungie title also got off to a big start in the UK as well.
For more on Destiny, be sure to check out IGN's review in progress. And for strategies and information on the shared-world shooter, consult IGN's wiki.
It went relatively under the radar during the past two weeks of intensive launches, but AMD is launching a new campaign specifically for system builders dubbed the AMD Power Pack.
Normally system builders (including both the mass production sellers and boutique builders) have the option of buying a Product-In-Box (PIB) retail APU with a CPU cooler, bundled codes and all the manuals, or the tray processor which comes just as the processor. The AMD Power Pack meets the PIB and Tray parts half way, offering in one package a set of six processors with bundled codes and CPU coolers, but no manuals and in a single box arrangement. This helps to save on the packaging and offer a price point between the PIB and Tray cost.
We caught up with Adam Kozak, Product Marketing Manager from AMD, for some inside information.
Can you give us a little bit of the history of the AMD Power Pack?
We previously had a Power Pack scheme back in the days of Athlon, which had success. At the request of system builders around the world, we have reintroduced the scheme with some of our most popular AMD APUs. We ran a successful test back in February and March of this year, and now we are pushing ahead with offering the Power Packs initially to EMEA and North America with other regions to follow.
What is the current AMD Power Pack all about?
We want to offer system builders some savings and encourage them to design systems around AMD products that might offer some better value than before. Secondary to this, noting how much waste goes on with PIB type bulk purchases, it offers a chance to cut down on waste and recycling as well. It offers that combination of PIB and Tray at a lower cost than PIB alone but with all the bundled extras, especially if we are running a promotion at the time.
What sort of buyers are you expecting for the Power Pack?
At this point in time we are selling to system builders through our distribution channels. This includes those who build hundreds of system
Microsoft reveals new release dates for key territories including Japan, China and Russia
Microsoft plans to launch Xbox One across 28 separate countries in September, expanding the console's presence across Asia, South America, Africa and Europe.
Coinciding with the release dates of some of this year's biggest games, from Destiny to FIFA 15, Microsoft plans to ship Xbox Ones across a wide array of new territories and help bolster sales outside its strongholds in the US and UK.
The launch dates for each country follows:
•September 2 - Chile and Colombia
•September 4 - Japan
•September 5 - Belgium, Czech Republic, Denmark, Finland, Greece, Hungary, Netherlands, Norway, Poland, Portugal, Saudi Arabia, Slovakia, Sweden, Switzerland, Turkey, United Arab Emirates
•September 15 - Israel
•September 23 - Hong Kong, India, Korea, Singapore, South Africa, Taiwan, China
•September 26 - Russia
Microsoft said it plans to launch Xbox One in Argentina soon afterwards.
Xbox One launched across North America and select European countries in November 2013. Since then, Microsoft has shipped about five million units to retailers, but it's not certain how many have sold through to customers.
Microsoft's Xbox One is set to make its Chinese debut on Sept. 23, making it the first foreign gaming console approved for sale via the Shanghai Free Trade Zone. The Chinese government has reportedly approved sales of 5 million units of the Xbox One.
According to the latest report by International Data Corporation [IDC], the decline in the PC industry is slowing down towards stability, as the mature markets are reporting higher-than-ever PC sales growth rates since 2010. The PC shipments growth rates in the mature markets stood at around 5.6% for the year, as both commercial and consumer segments are currently showing growth. IDC reports that the main reason of this growth rate uptrend is due to Microsoft's (NASDAQ:MSFT) announcement to end its support for the aging Windows XP operating system, which led companies and enterprise customers to move towards Google (NASDAQ:GOOG) Chromebooks. Also, the reduced prices of operating systems from Microsoft have also increased PC sales in some parts of the world. However, the fierce competition of alternate tech devices, along with several economic and political factors, will make it a challenge for PCs to penetrate in the emerging markets. However, as the innovation continues to happen in the segment at a fast pace, the focus is turning towards product prices - this will smooth the PC sales in both, emerging and mature markets.
The ZEN Architecture
AMD has recently hinted that it is in the process of developing next generation high-performance microarchitecture: codenamed Zen, which will deliver the performance improvements required to make it competitive against Intel (NASDAQ:INTC), one of the biggest rivals of the company. AMD did not provide any technical details of the new microarchitecture; however, the management claimed that the new microarchitecture is a high-performance x86-architecture and will be debuting in early 2016.
Sep. 14, 2014 7:22 AM ET | by IAEResearch
AMD has admitted that its Bulldozer microarchitecture was a misstep but claims that its next-generation replacement, Zen, will deliver the performance improvements required to become competitive with Intel once more.
Speaking at the Deustche Bank 2014 Technology Conference this week, AMD chief executive Rory Read gave a surprisingly honest appraisal of the Bulldozer microarchitecture around which its current-generation processors are designed. 'Everyone knows that Bulldozer was not the game changing part [expected] when it was introduced three years ago,' Read told attendees, according to a partial transcript prepared by WCCFTech. 'We have to live with that for four years.'
When those four years are up, however, AMD promises that it will have something a little special ready. 'For Zen [and] K12 we went out and got Jim Keller, we went out and got Raja Koduri from Apple, Mark Papermaster, Lisa Su,' Read explained, referring to his company's recent hiring spree of big-name industry specialists. 'We are building now our next generation graphics and compute technology that customers are very interested in [...] they’ll move to the next generation node and they’ll be ready to go.'
The speech is the first time AMD has publicly talked about its next-generation x86 microarchitecture, now confirmed as being codenamed Zen. This will launch, it appears, alongside the K12 ARM-based desktop architecture the company has been planning, in order to 'capture [desktop] ARM before it happens.'
Read did not provide any technical details of Zen, or how it differs from the current batch of Bulldozer and derived designs, but he did confirm that the company is targeting the usual manufacturing improvements including FinFET technology and process nodes down to the 14nm and 10nm size. The first FinFET-based product will, Read claimed, launch in 2016, but he did not provide a hint as to the process size.
A leaked image has appeared of what could be a prototype cooler for the upcoming AMD Radeon R9 390X, designed by Asetek. Just three weeks prior, Asetek boasted about a major design win with an "undisclosed OEM" relating to graphics liquid cooling, with this new image practically confirming that said OEM is AMD.
Asetek is the company who designed the hybrid liquid-air cooler for the dual-GPU Radeon R9 295X2, so it makes perfect sense for their partnership with AMD to continue. The cooler they're developing for the R9 300 series card is similar in design to that for the R9 295X2, but with the fan moved towards the back to cool just one GPU. Along the top you can still see the liquid cooling loop connectors.
At this stage there's not much that can be gathered about AMD's upcoming flagship graphics cards, other than they're looking at drastically improving the reference cooler. The R9 290X was a hot, loud card when cooled by the weak stock cooler, so moving to a hybrid cooler will allow it to push the performance boundaries while keeping cool.
It's rumored that the Radeon R9 390X, the high-end card that'll likely use this cooler, will launch in early 2015 equipped with a Volcanic Islands-series 'Fiji' GPU. Specifications at this stage are unknown, as AMD is clearly still in the development phase for the card.
Meanwhile, as has been the case with the past few generations of graphics cards, Nvidia will launch their new line of Maxwell-based graphics cards first. It's expected that the GeForce GTX 900 series will launch as early as next week.
According to Rory Read's interview at the Deutsche Bank Technology Conference (Seeking Alpha's transcript), professional graphics gross margins are between 50% and 70%. AMD's improving market share in this business is a great advantage for the company as it continues to venture into high growth markets outside of the traditional PC business.
On the big player's side
According to JPR, HP (NYSE:HPQ) continues to hold the strongest footprint within the workstation market. This is advantageous for AMD, as HP has served to be a great partner as of lately. As an example, Vancouver Film School adopted 775 HP Z Workstations last month, all featuring AMD's FirePro W7000 professional graphics cards. With HP and Apple as great partners, I expect AMD to continue growing its market share for next several quarters.
AMD announced that the next generation HP mobile and desktop workstations will feature its latest FirePro professional graphics and the same will also empower 4K video Workflows for Broadcast customers at IBC 2014. (Read Press Releases) The stock declined marginally last week (~2%). Our valuation of $4.17 is almost in line with the current market price, which translates into market cap of approximately $3 billion. We forecast AMD’s 2014 revenue to increase to $5.4 billion and net income to turn positive by year end. Our GAAP and non-GAAP diluted EPS estimates stand at $0.15 and $0.37, respectively.
Shares of MannKind (MNKD) have gained 1.8% to $7.47 at 3:49 p.m. today after Jefferies initiated the company at Buy. Jefferies analyst Shaunak Deepak explains why he’s bullish on MannKind’s shares:
The Street Is Negatively Biased Against Afrezza Launch. MannKind is off 33% sincethe Afrezza approval, reflecting negative Street sentiment about the Sanofi partnership and upcoming launch. Key concerns include docs not adopting Afrezza as a first-line insulin, aggressive counter-detailing from Novo and Eli Lilly (LLY) to protect their stake in the $6b+ mealtime insulin market, and a bad track record with the only other approved inhaled insulin, Exubera.
We Believe Afrezza Could Radically Grow Mealtime Insulin Use. We believe Afrezza could address a major unmet need among patients poorly controlled with oral drugs that have not advanced to injectable agents. Surveys of insulin non-adherence suggest a not insubstantial portion of patients reject insulin due to reluctance to take shots. Accounting for other factors that influence patient avoidance of insulin, we believe Afrezza could be used as a first-line insulin for almost 8% of type 2 patients failing oral drugs, worth $1.6b in peak U.S. sales. We believe Sanofi would promote Afrezza as a first-line insulin to gain and retain patients for its $8b+ insulin franchise.
Deepak initiated MannKind with a price target of $10, 34% higher than its current price.
MannKind: Looking Beyond The Short-Term Disappointment
Aug. 12, 2014 10:00 AM ET | by George Rho | about: mnkd
The terms of the marketing partnership is clearly a near-term disappointment.
MannKind couldn't have found a better partner for the long haul, though.
Sanofi optimizes the chances of Afrezza achieving rapid and substantial commercial success.
MannKind Corporation (NASDAQ: MNKD) and France-based Sanofi (NYSE: SNY) announced early yesterday morning (August 11, 2014) that they have entered into aworldwide exclusive licensing agreement for the development and commercialization of Afrezza®, MannKind's recently approved rapid-acting inhaled insulin therapy for adults with type 1 and type 2 diabetes. Under the collaboration and license agreement, Sanofi will be responsible for global commercial, regulatory and development activities. Under a separate supply agreement, MannKind will manufacture Afrezza at its facility in Danbury, Connecticut. In addition, the companies are planning to collaborate to expand manufacturing capacity to meet global demand as necessary. MannKind will receive an upfront payment of $150 million and potential milestone payments of up to $775 million. The milestone payments are dependent upon specific regulatory and development targets, as well as sales thresholds. The two companies will share profits and losses on a global basis, with Sanofi retaining 65% and MannKind receiving 35%. The huge French concern has agreed to advance to MannKind its share of the collaboration's expenses up to a limit of $175 million. The companies plan to launch Afrezza in the United States in the first quarter of 2015.
Sanofi May Just Be the Perfect Partner
Sanofi, which we recommended just yesterday, may be the ideal partner to market MannKind's Afrezza, underscored by both a long-established global presence in the diabetes sector and a complementary portfolio of products. The company has 90 years of experience selling insulin, most notably long-acting basal insulin Lantus, which is not only the best-selling insulin product in the world, with sales likely to approximate $8.7 billion in 2014, but was also used in conjunction with Afrezza in its latest clinical trials. That's not all, it sells diabetes products in some 120 countries, supported by a salesforce that totals about 32,000, including almost 10,000 in the United States where a large percentage of Lantus revenues are generated. Sanofi's impressive record of successfully introducing new products and building sales strongly suggests that its selection has substantially reduced the commercialization risk of Afrezza. Moreover, considering the facts that Lantus loses patent protection next year and Afrezza is the ideal complement to its long-acting insulin, the marketing partner will clearly be strongly motivated to sell MannKind's prandial inhaled insulin.
The Deal Has Strongly Positive Financial Implications
As noted above, the terms of the agreement include an upfront payment of $150 million, which should be received shortly. So, factoring in the $41.2 million cash balance as of June 30, 2014 and the $40.0 million received from Deerfield on July 18th, MannKind will have an atypically large cash cushion going forward. The details of the milestone payments haven't been spelled out yet, but the biotech stands to receive another $75 million for achieving certain development and manufacturing objectives, $50 million for Afrezza getting to market in Japan and Europe, and up to $650 million for reaching certain sales milestones, the first one at $250 million. On the cash outflow side, the most significant is the $100 million in convertible debt that matures August 15, 2015. Given a conversion price ($6.80/share) that's considerably below the prevailing market price, we think there's a strong likelihood that the debt will be converted into some 14.7 million common shares, obviating the need to shell out $100 million. As well, although the company will be responsible for what will undoubtedly be losses stemming from Afrezza's early days on the market, a loan facility (for $175 million) from Sanofi will most likely be sufficient to cover the red ink until profits start to flow. Significantly, too, Sanofi will assume responsibility for conducting additional clinical trials, conducting the post-marketing studies required by the Food & Drug Administration, and making regulatory submissions in all other major markets. All of the above, meanwhile, puts MannKind in a position to focus its growing resources (and management attention) on advancing its other R&D prospects, most certainly including the Technosphere drug delivery platform that has been validated by the Afrezza approval.
Well Positioned for the Long Run
MannKind shares initially gapped up on the announcement of the long-awaited partnership agreement. They spent most of the day giving up a good part of the gains, however, as investors digested the details of the deal. Some stockholders, including the author, were disappointed that the transaction announced wasn't a buyout of the company. Others, no doubt, weren't happy with the relatively small upfront payment, nor with the rather nebulous profit sharing arrangement. Unfortunately also, this angst wasn't alleviated by management during two separate conference calls when executives from both MannKind and Sanofi declined to comment on marketing strategy, pricing, and other variables that would allow analysts to better assess the agreement and construct earnings models, citing either competitive reasons or the existence of some uncertainty on their part.
All that said, management has thus far achieved all of its frequently stated objectives. Most significant, MannKind now has an FDA-approved novel new insulin product that targets the largest therapeutic market in the world. Equally important, the biotech may have secured the perfect partner to sell the new insulin product around the world. One can quibble about the terms of the deal, but it would be difficult to argue with the proposition that Sanofi optimizes Afrezza's chances of achieving substantial and rapid commercial success. MannKind perhaps could have extracted a few hundred million more dollars in upfront money or a slightly better profit sharing split from a different potential partner, but management decided that the deal with Sanofi offered the best long-term possibilities. Interestingly, during one of the conference calls, the company's chief financial officer noted that the 65/35 split equated to a roughly mid-20% royalty rate, a metric that most investors would probably have an easier time understanding and a figure with which they would most likely be content. All in all, expectations and disappointments aside, MannKind seems well positioned for the long haul. The upfront fee is certainly far less than we had anticipated, but the implied royalty rate is in line with expectations. We will update our earnings and share-price projections after the company has published more details of the agreement and provided better guidance on accounting treatment for milestone payments and profits received. For now, we see no reason to change our "buy" recommendation.