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Synopsys Inc. Message Board

lakers_w 2 posts  |  Last Activity: Aug 17, 2014 5:56 AM Member since: Jun 13, 2000
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  • Evaluating MannKind (MNKD) & Sanofi (SNY) Agreement for Afrezza

    By Last Financier - 1 day ago

    About MNKD, SNY

    MannKind (MNKD) has seen volatile price swings upon the partnership announcement for Afrezza with Sanofi (SNY). MNKD stock is down ~9% since the announcement. Full details of the collaboration have not yet been disclosed and neither have Afrezza projections. Therefore, much of the ongoing price movements are due to speculation. With that said though, there are takeaways from this deal.

    Overview of Terms

    MannKind will receive an upfront $150M payment and potential milestones of up to $775M, depending upon specific regulatory, development and sales targets. Sanofi and MannKind will share profits and losses at a 65/35 split, respectively. Sanofi has also agreed to advance MannKind a loan of up to $175M to cover its share of Afrezza expenses that MannKind will need to repay.

    Sanofi Stopgap for Lantus Patent Expiration

    Lantus, the long-acting basal insulin that has been SNY’s blockbuster diabetes drug with $7.5B sales in 2013 will expire in the US and most of the EU by May 2015. Sanofi needed to minimize the revenue impact of generics and has taken a step by partnering with MannKind. Sanofi’s sales force, which has pushed the world’s leading diabetic drug, will integrate Afrezza when the companies plan to launch in Q1 2015. Therefore, both MannKind and Sanofi are relying on Afrezza to be successful.

    Financially, Sanofi gains majority access to a potentially multi-billion dollar drug for less than a billion ($925M to be exact). It seems Sanofi was able to avoid the regulatory risk with Afrezza’s FDA approval and only taking on marketing risk (which they are global leaders for diabetes). At a first glance, this deal was a big win for Sanofi.

    Why MannKind is Selling Off

    Market’s original reaction to MannKind’s announcement was that management gave away 65% of Afrezza for less than $1B. However, as mentioned above, the final details of the agreement have not yet been released, so a thorough analysis is hard to conduct.

    MannKind’s management primary goal was to see Afrezza succeed. To realize this, the company secured the leading global pharma in the diabetes care market. With Sanofi’s expertise and resources, it’s unlikely to see Afrezza flop. With Sanofi on their corner, much of the marketing risk is taken off the table for MannKind. Without looking at the figures, the deal makes lots of sense for MannKind.

    I believe the market had higher expectations (maybe too high) on the terms of a Afrezza deal. A revenue agreement, instead of P/L, would have been more beneficial. However, I believe MannKind was set on having Sanofi as their partner, and thus took less favorable terms to ensure the marketing success of Afrezza.

    Additionally, MannKind does not have any upcoming catalysts that event driven investors are interested in. With approval and partnership announcement, MannKind has had quite the eventful summer. The drug won’t hit markets until Q1 2015, with sales data expected sometime in Q3 2015. During this time, MannKind could be seen as “dead money” by the investment community, thus leading to the selloff.

    Projecting 2015

    Financially, MannKind reduced development costs by 65%. The $175M loan that MannKind received from Sanofi indicates that the costs to market Afrezza will be approximately $500M (35% of $500M = $175M). Therefore, it will take about $500M worth of profits for MannKind to get even on the loan.

    The above table assumes that the profit margin from Afrezza will be 20%, which is around the same range Sanofi reports in the company statements. If 2015 sales are $1B, MannKind would receive approximately $70M, excluding milestone payments from Sanofi. At the same time, peak sales of Afrezza have been projected to be more than $1B that I assume in 2015, the launch year.


    The announced deal has given Sanofi an outlet to sustain its diabetic sales, even with the expiration of Lantus. MannKind landed the market leading diabetic sales force to push Afrezza, however this was done at a high cost. The success of this partnership will be decided by Afrezza’s success in penetrating the diabetes care market.

    Peter.verbeke@facebook - 1 day ago
    I think the 20% operating margin on Afrezza is way too low. That may be the overall number for Sanofy, but it includes 14% R&D and 14% Other + Non-recurring both of which should not count towards the profit margin fro Afrezza. So we're already at 48%.

    Also overall Sanofi Admin/Sales is 25%. Of course I don't know the terms of the deal, but if Sanofi does not hire salesstaff for Afrezza specifically (and I don't think they will), the number should also come down. So I think the Mannkind 35% will come out of slightly over 50% over revenue. So I expect the profit sharing to yield 150% more than your estimate.

  • 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.

39.10+0.08(+0.21%)Aug 19 4:00 PMEDT

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