MannKind Corporation Form 10-Q Summary
Reporting period: Three and six months ended June 30, 2022; filed August 9, 2022. MannKind commercializes Afrezza inhaled insulin and, beginning May 31, 2022, the V-Go wearable insulin delivery device. It also manufactures and supports partner products using its Technosphere platform.
Key financial metrics
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Total revenue | $18.9 million | $23.3 million | $30.9 million | $40.7 million |
| Commercial product sales | $12.7 million | $10.0 million | $22.5 million | $18.1 million |
| Collaboration and services revenue | $5.9 million | $13.3 million | $8.0 million | $22.6 million |
| Royalties | $0.3 million | — | $0.3 million | — |
| Net loss | $(29.0) million | $(35.5) million | $(55.0) million | $(48.4) million |
| Loss per share | $(0.11) | $(0.14) | $(0.22) | $(0.20) |
| Cash used in operations | — | — | $(50.2) million | $(34.2) million |
- Commercial product gross profit was $8.1 million in Q2 and $15.6 million for the first six months, with reported margins of 64% and 69%, respectively, compared with 56% and 52% in the prior-year periods.
- Operating loss was $20.5 million in Q2 and $41.7 million for the first six months. Net loss margins were approximately 154% and 178% of revenue, respectively.
- At June 30, 2022, cash and cash equivalents were $35.5 million; short-term investments were $118.6 million; and long-term investments were $32.6 million. Total cash, cash equivalents and investments were approximately $186.7 million.
- Total assets were $285.8 million, while stockholders’ deficit was $247.1 million and accumulated deficit was $3.2 billion.
- Principal debt was $278.8 million, consisting principally of $230.0 million of 2.5% convertible senior notes due 2026, $40.0 million under the MidCap facility, and $8.8 million under the Mann Group convertible note.
- Management stated that available resources were expected to fund operations beyond the next twelve months, but the company remains unprofitable and has historically generated negative operating cash flow.
Material changes versus the prior comparable period
- Total revenue declined 19% in Q2 and 24% for the first six months, primarily because significant United Therapeutics research and development revenue recognized in 2021 was substantially complete in 2022.
- Commercial product sales increased 28% in Q2 and 25% year to date. Afrezza sales benefited from higher demand, pricing and product mix. V-Go contributed $2.1 million of net revenue following its acquisition.
- Tyvaso DPI was approved by the FDA in May 2022 and commercialized by United Therapeutics in June 2022. MannKind recognized $4.7 million of CSA revenue in Q2, $0.3 million of royalties, and expects manufacturing-margin and royalty revenue as commercialization progresses.
- Research and development expense increased 110% in Q2 and 77% year to date, primarily due to pipeline development and the Afrezza pediatric INHALE-1 study.
- Selling expense increased 38% in Q2 and 35% year to date, reflecting promotional activities for Afrezza and V-Go and a primary-care physician pilot program.
- Operating cash use increased to $50.2 million year to date from $34.2 million. Investing cash use was $37.5 million, including $15.1 million for V-Go and $68.5 million for debt securities, partly offset by $53.3 million of maturities.
- V-Go was acquired for $15.1 million in cash plus $0.6 million of contingent consideration, with potential sales-based milestone payments of up to $10.0 million.
- Mann Group converted $10.0 million of principal and capitalized interest into 4.0 million common shares during the quarter; the company also issued 31,541 shares for quarterly interest.
Guidance, outlook, risks and unusual items
- No formal revenue or earnings guidance was provided. Management expects continued significant spending on manufacturing, sales and marketing, and pipeline development.
- Management identified manufacturing capacity and execution for Tyvaso DPI as a key risk, including the possibility that production may not meet United Therapeutics’ demand.
- The company recorded a $4.5 million Q2 foreign-currency gain and a $6.5 million year-to-date gain related primarily to euro-denominated insulin purchase commitments. A 10% euro exchange-rate change would have affected pretax loss by approximately $7.3 million.
- Remaining insulin purchase commitments under the Amphastar agreement were approximately €70.2 million through 2027, while the recognized loss-on-purchase-commitments liability was $73.4 million at June 30, 2022.
- A $5.0 million milestone-rights payment related to Afrezza sales was due in the third quarter of 2022. Up to $65.0 million remained payable upon achievement of specified future milestones.
- The company’s sale-leaseback of its Danbury facility is accounted for as a financing transaction, with a $103.9 million financing liability at quarter-end and annual rent beginning at approximately $9.5 million, subject to stated abatements and escalators.
- The MidCap facility bears interest tied to one-month LIBOR plus 6.25%, subject to a 1% floor, and includes a minimum Afrezza revenue covenant when unrestricted cash and short-term investments fall below $90.0 million. The company reported compliance at June 30, 2022.
- Material risks include continuing losses and negative operating cash flow, debt repayment and refinancing risk, potential need for additional capital, dependence on key suppliers and contract manufacturers, COVID-19 and geopolitical supply-chain disruption, payer coverage and reimbursement, regulatory compliance, product adoption, and limited long-term clinical data for V-Go.
- Management reported effective disclosure controls and procedures and no material change in internal control over financial reporting during the quarter. Ordinary-course legal proceedings were not expected to have a material adverse effect.
Investor verification priorities
- Verify the pace and profitability of Afrezza and V-Go adoption, including gross-to-net deductions and payer reimbursement.
- Track United Therapeutics’ Tyvaso DPI sales, MannKind manufacturing volumes, royalties and manufacturing margins.
- Reconcile cash burn with the company’s stated liquidity outlook and monitor whether additional equity or debt financing becomes necessary.
- Review debt maturities, MidCap covenant compliance, LIBOR replacement terms and potential dilution from convertible notes.
- Assess the impact of the $73.4 million insulin purchase commitments and the remaining Afrezza milestone obligations.
- Evaluate V-Go integration, contingent consideration, manufacturing performance and the absence of substantial long-term clinical data.