3 Things to Look for in MannKind's Partnership

It's been a week since MannKind (NASDAQ: MNKD  ) gained Food and Drug Administration approval for its inhaled insulin Afrezza, and the biotech still hasn't announced a marketing partner. What's taking so long?

I jest. But I'm allowed to. MannKind has been talking about a partnership since before the FDA first rejected the drug four years ago.

Without a doubt, a partnership is the next big catalyst for the stock now that Afrezza is approved. Here are three things to look for when the partnership is announced.

1. Is there a partnership?
Don't get me wrong -- MannKind can find a partner. Some company is surely willing to market Afrezza. If you believe CEO Alfred Mann -- and that can be dangerous -- multiple companies have already expressed interest.

The question is whether the terms are acceptable to MannKind. That's presumably why MannKind didn't sign a deal before the approval, despite all the "discussions" it has had with potential partners. While it's possible no company wanted to license the drug before approval, my guess is MannKind felt the terms being offered weren't good enough to justify commencing an agreement.

As it turns out, rejecting any lowball offers was likely a good move. With the risk of an FDA rejection removed, the up-front payment MannKind can collect is presumably higher than it could have fetched before the approval.

It remains to be seen whether the terms, which will likely include an up-front payment, royalties, and possibly payments linked to sales milestones, will be substantial enough to justify signing on the dotted line.

If MannKind turns down the deal(s) it's offered and launches on its own, the company's value should shrink substantially. Diabetes is too big a market for a small company to launch a product on its own. Afrezza's potential is substantially greater in the hands of a large partner.

A good example here is Amarin (NASDAQ: AMRN  ) , which launched its triglyceride-lowering drug Vascepa with its own sales force despite saying that it was interested in finding a partner. It hasn't worked out so well: Amarin booked just $11 million in Vascepa sales in the first quarter. Even if you assume a large partner couldn't do any better, Amarin likely would have been better off handing over the marketing and accepting a royalty given that it spent over $19 million on selling, general, and administrative expenses.

2. Who is the partner?
The partner doesn't have to be a diabetes powerhouse. In fact, that's somewhat unlikely. It's hard to see Novo Nordisk (NYSE: NVO  ) or Eli Lilly (NYSE: LLY  ) partnering with MannKind, since Afrezza will compete directly with Novo Nordisk's Novolog and Eli Lilly's Homolog.

Source: MannKind.

But I'd be wary if MannKind licenses Afrezza to a partner with no diabetes drugs. There's something to be said for experience. And a drugmaker that has a diabetes sales force can presumably offer a higher royalty because it doesn't have to set up a new team.

The best-case scenario would be a company that markets to type 2 diabetics, because that seems to be the population most likely to take Afrezza, at least initially. Merck (NYSE: MRK  ) , with its Januvia franchise, would be an ideal candidate. And Merck is clearly interested in expanding its diabetes repertoire after licensing Pfizer's diabetes drug candidate ertugliflozin last year.

3. The terms?
There are a lot of moving parts with licensing deals, including up-front payments, royalties, and one-time sales milestones. It can be difficult to determine how good a deal is, especially since the thresholds for milestone payments -- lovingly referred to as biobucks -- usually aren't disclosed and royalty rates are often given in vague terms such as "high teens" or the ever-elusive "double digit."

The one number investors should keep their eye on is the guaranteed up-front money. The more MannKind is given straightaway, the more confidence the partner has with Afrezza's potential. While it doesn't guarantee success, a large up-front payment should boost MannKind's value because it will show investors that at least one industry player thinks doctors will prescribe Afrezza.

Arena Pharmaceuticals and Orexigen both received a $50 million up-front payment from their respective partners for obesity drugs that had not yet been approved. MannKind theoretically should be able to swing more than that, although deal terms are fluid. If it's given an option of $100 million up front with a 20% royalty or $50 million up front with a 30% royalty, the latter is probably a better deal since the extra 10% should bring in more than $50 million over the life of the product.

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Read/Post Comments (26) | Recommend This Article (15)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 04, 2014, at 11:28 PM, BiotekResearch wrote:

    That was actually a very well articulated and surprisingly balanced article.

  • Report this Comment On July 06, 2014, at 9:42 AM, Topdoginvesting1 wrote:

    $50 Million and 30% means an extra $50 Million over the life the Drug for a total of $200 million, this number in a $245 Billion Dollar market and growing everyday.. And to say to believe Mr. Mann can be dangerous. And for the record, he does not look at patients, a Pharmacist can put Dr. in front of their name, or a person with a Phd in Finance. This writer has no business writing and if you follow him, well then, you are a Fool..

  • Report this Comment On July 06, 2014, at 9:42 AM, rchic1 wrote:

    Again The Fool goes out of its way to cast aspersions on Dr. Mann. My personal belief is that Mann is perfectly capable of launching this drug personally. The money is available through further stock issuance. Other sources that will be standing in line to participate in this blockbuster drug would be loans from banks, insurance companies, hedge funds, mutual funds, etc.

    Other companies would be willing to fund operations for a piece of the swag.

    It concerns me that The Fool who I have always had a vast amount of respect for, has put itself out on a limb and is now sawing it off.

  • Report this Comment On July 06, 2014, at 12:14 PM, Topdoginvesting1 wrote:

    Brian, would you please tell us why it is Dangerous to believe CEO Alfred Mann?? When has he lied to the Public?? If you cannot provide a reason, then this is Slander, if you can then it is not. Thanks for answering in advance..

  • Report this Comment On July 06, 2014, at 1:54 PM, wildpig wrote:

    yes Brian- plz explain to me why it is dangerous to trust AL Man. and yes Brian you have thrown at 3 barbs in your OPINION that are not read in the positive light. and yes Brian you owe an explaination to the FOOLS who read this stuff. and yes Brian there have been discussions, there are plants in the finishing phases, hiring in the finishing phases, an FDA approved inhalation diabetes drug, sworn testimony from people urging FDA approval as to the effectiveness and great benefit they have already received in clinical trials-- so yes Brian I for one await your response and frankly-- your apology.

  • Report this Comment On July 06, 2014, at 2:03 PM, AMax101 wrote:

    Topdoginvesting1: you are completely wrong on the definition of slander. Slander would be the author making defamatory comments about the company. Nice try though.

  • Report this Comment On July 06, 2014, at 2:32 PM, Topdoginvesting1 wrote:

    @AMax101, You obviously don't know what you are talking about. Mr Mann represents the Company since he is CEO and if it is "Dangerous to Believe Mr Mann", this effects the Company. Nice try though.

  • Report this Comment On July 06, 2014, at 2:37 PM, Topdoginvesting1 wrote:

    @AMax101, slan·der

    ˈ slandər/Submit

    nounLAW

    1.

    the action or crime of making a false spoken statement damaging to a person's reputation.

    "he is suing the TV network for slander"

    plural noun: slanders

    "I've had just about all I can stomach of your slanders"

    synonyms: defamation (of character), character assassination, calumny, libel; More

    verb

    verb: slander; 3rd person present: slanders; past tense: slandered; past participle: slandered; gerund or present participle: slandering

    1.

    make false and damaging statements about (someone). Pretty Simple to understand..

  • Report this Comment On July 06, 2014, at 5:31 PM, studyingforbar wrote:

    @ Topdoginvesting1

    Slander is verbal and libel is written but I am sure that you knew that.

    Making false and damaging statements about someone is considered defamation.

    Also, since Mann is a public figure in order to prove defamation (libel) then the statement must be false and done with malice.

    Pretty simple to understand.

  • Report this Comment On July 06, 2014, at 5:32 PM, studyingforbar wrote:

    @ Topdoginvesting1

    it is embarrassing to quote a dictionary and still be wrong. :(

  • Report this Comment On July 06, 2014, at 5:38 PM, studyingforbar wrote:

    @ Topdoginvesting1

    Actually, because I am studying this hear is the breakdown for you...because I am nice

    Defamation: Defamatory statement concerning the plaintiff that is published and plaintiff suffers damages

    Damages: Libel (per se and per quod); slander (per se)

    Constitutional defamation (Here it applies)

    Matter of public concern: public figure; private person but public figure.

    False

    Fault (if public person then Malice; if private but public concern then at least negligence)

    Defenses: Absolute privilege; Qualified privilege; Consent; Truth

    You are welcome @ Topdoginvesting1. Now you never have to be wrong again.

  • Report this Comment On July 06, 2014, at 5:39 PM, studyingforbar wrote:

    @ Topdoginvesting1 misspelling above on my part: here*

  • Report this Comment On July 06, 2014, at 9:52 PM, Topdoginvesting1 wrote:

    @studyingforbar, I didn't Quote, I copied and Pasted from Wikipedia, if they are wrong you need to take that up with them, but I believe I will stick with them. @ Studyingforbar, There you never have to be wrong again..

  • Report this Comment On July 06, 2014, at 10:07 PM, studybaringfor wrote:

    @ Topdoginvesting1

    Not trying to be jerk by pointing out your fallacies BUT the copy and past thing you did from Wiki...actually only supports my point that you are unaware of the difference between Libel and Slander.

    Look at the statement you pasted...ok...now that you have done that I want to you look back up there, specifically where it states "false SPOKEN statement."

    There @ Topdoginvesting1 now you do not have to look like an idiot anymore. (This is an opinion and therefore not Libel...so you cant sue me for Libel)

    You are very welcome. <3 studyingforbar (forgot what email I used earlier for that account - I am studying for the bar so my mind is a little scattered)

  • Report this Comment On July 06, 2014, at 10:07 PM, Topdoginvesting1 wrote:

    @studyingforbar, you missed some from your copy and paste above, I will add them for you.. Under common law, to constitute defamation, a claim must generally be false and have been made to someone other than the person defamed.[1] Some common law jurisdictions also distinguish between spoken DEFAMATION, CALLED SLANDER, and defamation in other media such as printed words or images, called libel. Taken from Wikipedia. And Hear is like hearing a sound, but you did get that corrected..

  • Report this Comment On July 06, 2014, at 10:11 PM, Topdoginvesting1 wrote:

    @studingforbar, I don't have to try to make you look like an idiot, you are doing fine all by yourself. You need to work on the easy things in life, like the difference between "Hear" and "Here" instead of copying and pasting and then taking away a few words here and there..

  • Report this Comment On July 06, 2014, at 10:12 PM, Topdoginvesting1 wrote:

    @Brian, you never have answered the question. Why is believing Mr Mann Dangerous?

  • Report this Comment On July 06, 2014, at 10:17 PM, studybaringfor wrote:

    OR you can wiki Defamation and literally everything I have been saying should be laid out in front for you.

    Well...this is why we hire attorneys so we do not have to be aware of these nuances in the legal world.

    I am merely trying to give you a friendly heads up for the future. You see, whoever reads your "Slander" posts, and is aware of the law, will immediately think that you are unread and not take you seriously. However, the majority of people out there will have no idea of the differences so you are probably safe.

    Cheers.

  • Report this Comment On July 06, 2014, at 10:18 PM, irishred1 wrote:

    to the Mankind pumpers/ignorant shareholders above- post facts not opinions. Believing Al Mann is dangerous because he's been promising a partnership for 4 years stringing investors along. I've been tweeting about this stock for the past week trying to warn investors about it... at 4 billion market cap it's priced for perfection and any disappoint snaps this in half. Next DNDN in the making IMO...ok back to your name calling

  • Report this Comment On July 06, 2014, at 10:24 PM, missjessiecat wrote:

    I'm here as an investor, not a lawyer! However, I do realize that The Fool has been against MNKD for quite some time, and I do believe that, in the end, they will be quite embarrassed. MNKD will be very, very successful and many will prosper from their belief in Al Mann!

  • Report this Comment On July 06, 2014, at 10:25 PM, studybaringfor wrote:

    @ Topdoginvesting1 believe it or not I am not copying and pasting a single thing.

    I have to know this stuff for the Bar and it is actually helping me by arguing with you.

    Would you believe me if I told you that defamation does not HAVE to be false. This is why what you posted stated that it is (generally false).

    It is actually the defendant's burden of proof to show that the statement is false - which is an absolute defense. See Truth above.

    HOWEVER,

    If a public figure is suing for defamation, then the burden is on them to show that it is false.

    Thus, the use of the "generally" statement in your copy and paste.

  • Report this Comment On July 06, 2014, at 10:27 PM, studybaringfor wrote:

    Eh...Im sorry guys...I am an MNKD long and this is literally my only break from studying to see how this stock is performing and whether there is any news of partnership.

    I will crawl back in my cave and the joys of property law.

    Cheers

    @ Topdoginvesting1 - I enjoyed the back and forth.

    Sorry for blowing up the page.

    GL to all on market opening tomorrow.

  • Report this Comment On July 06, 2014, at 10:34 PM, Topdoginvesting1 wrote:

    @studybaringfor, goodluck. @irishred1, promising a partnership for four years, thanks for the answer. Maybe he thought Afrezza would have been approved years ago. Now that it is approved, maybe the partnership or buyout will happen..Goodluck

  • Report this Comment On July 06, 2014, at 10:35 PM, Topdoginvesting1 wrote:

    @studybaringfor, goodluck. @irishred1, promising a partnership for four years, thanks for the answer. Maybe he thought Afrezza would have been approved years ago. Now that it is approved, maybe the partnership or buyout will happen..Goodluck

  • Report this Comment On July 07, 2014, at 9:35 AM, rchic1 wrote:

    Excuse me for getting in between the competing parties. The explanation of what he said in the blog was simply that if Dr. Mann was taken at his word in the past than many buyers of this stock may have been misled. I am long and happily so. Give the devil his due. He was following the dogma that the fool has set before him. He feels that the price of the stock is badly extended and he may be right, just not in my opinion.

  • Report this Comment On July 09, 2014, at 8:46 AM, larryw101 wrote:

    This clown author needs a new barber. His mom must put a bowl on his head and cuts him herself.

    He knows nothing about Mankind as evidenced by his biased articles.

    He is a perfect fit to the Motley Fool list of fools. Nobody puts any credence in what MF says anymore.

    Motley Fool = Garbage Journalism

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