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MannKind Lands Afrezza Partner but at High Cost

VALENCIA, Calif ( TheStreet) -- MannKind (MNKD) found a partner willing to sell the inhaled insulin device Afrezza but the deal terms, as expected, are rather terrible. 

Sanofi (SNY - Get Report), an established Big Pharma player in the global diabetes market, will market Afrezza worldwide in exchange for a $150 million upfront license fee paid to MannKind. The two companies will share Afrezza profits and losses on a global basis, with Sanofi retaining 65% and MannKind receiving 35%.

Sanofi agreed to "advance" MannKind up to $175 million for its share of the Afrezza joint venture expenses, meaning MannKind has to repay those costs.

MannKind is also eligible to receive another $775 million in milestone payments from Sanofi tied to regulatory and development target, as well as Afrezza sales achievements. 

Sanofi was always in the mix as a potential Afrezza marketing partner. The company's $8 billion-a-year Lantus insulin franchise is at risk of falling off a cliff with patent protection ending next year. The company was already trying to stave off  generic competition with an improved version of Lantus, so adding Afrezza might also help cushion the blow. 

The "meh" Afrezza FDA label (black box safety warning, onerous post-approval study requirements, no hypoglycemia benefit) combined with MannKind's fragile financial state, put MannKind founder and CEO Al Mann on the defensive when it came to negotiating terms of a marketing partnership.

For all the hype about Afrezza's greatness, Mann walks away with a joint venture in which he secures just one-third of Afrezza's potential profit -- and losses.

Once the initial excitement of a deal getting done washes away, MannKind's current $3 billion-plus valuation will look even more bloated than ever. 

Historically, joint venture marketing partnership for drugs favor the larger partner because they're better equipped to load up expenses and wait out the inevitable losses. The classic example is the Bayer-Onyx Pharma joint venture to sell the cancer drug Nexavar. Onyx ended up hating that partnership -- and so did investors -- because real profits were hard to come by despite strong Nexavar sales. 

Bayer and Onyx shared profits and losses from Nexvar equally and it was considered a terrible deal for the smaller Onyx. MannKind is only getting one-third of the profits and losses of Afrezza, with Sanofi keeping the rest. 

Arena Pharmaceuticals (ARNA) and Eisai partnered to sell the obesity pill Belviq, but Arena gets a royalty from Eisai equal to one-third of Beliviq worldwide sales.

MannKind's Afrezza joint venture partnership with Sanofi is worse, reflecting the risk and uncertainty of the inhaled insulin device's commercial potential. 

If you're looking for something positive, at least MannKind doesn't have to sell Afrezza on its own. 

Adam Feuerstein writes regularly for TheStreet. In keeping with company editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback; click here to send him an email.

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