MannKind Corporation: Q1 2023 Form 10-Q Summary
Business context and reporting period
MannKind is a biopharmaceutical company commercializing Afrezza inhaled insulin and the V-Go wearable insulin delivery device, while manufacturing Tyvaso DPI for United Therapeutics (UT) and receiving royalties on UT’s net sales. The filing covers the three months ended March 31, 2023, compared with the three months ended March 31, 2022. The statements are unaudited.
Financial performance and key metrics
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Total revenue | $40.6 million | $12.0 million | +239% |
| Commercial product sales | $17.6 million | $9.8 million | +79% |
| Collaboration and services revenue | $11.4 million | $2.2 million | +426% |
| Royalty revenue | $11.7 million | — | New in period |
| Commercial product gross profit | $12.0 million | $7.5 million | +60% |
| Commercial product gross margin | 69% | 77% | Down 8 percentage points |
| Loss from operations | $(6.0) million | $(21.3) million | Improved $15.3 million |
| Net loss | $(9.8) million | $(26.0) million | Improved $16.2 million |
| Net loss per share | $(0.04) | $(0.10) | Improved |
| Net cash from operating activities | $1.2 million | $(18.2) million | Improved $19.4 million |
Revenue from UT totaled $23.0 million, consisting of $11.2 million of commercial supply revenue, $0.2 million of other UT collaboration revenue, and $11.7 million of royalties. Afrezza net revenue increased 26%, while V-Go contributed $5.1 million of net revenue following its May 2022 acquisition. Commercial product gross margin declined primarily because V-Go carries a lower margin than Afrezza.
Operating expenses totaled $46.6 million, up 40%. Research and development expense increased 59% to $5.6 million, primarily due to MNKD-101 and the Afrezza pediatric INHALE-1 study. Selling expense increased 5% to $13.3 million, and general and administrative expense increased 32% to $10.5 million. A $2.4 million inventory write-off was recorded, primarily in collaboration cost of revenue. Foreign currency transaction loss was $1.0 million versus a $2.0 million gain in the prior-year period.
Liquidity, debt and capital resources
- Cash and cash equivalents were $85.9 million at March 31, 2023, compared with $69.8 million at December 31, 2022.
- Short-term investments were $80.3 million and long-term investments were $0.5 million; cash, cash equivalents and investments totaled approximately $166.7 million.
- Total debt at carrying value was $274.0 million; principal debt outstanding was $278.8 million.
- Debt included $230.0 million of 2.5% senior convertible notes due March 2026, $40.0 million under the MidCap facility due August 2025, and $8.8 million under the Mann Group convertible note due December 2025.
- MidCap principal amortization begins in September 2023. The facility is secured by substantially all company assets, including intellectual property, and includes an Afrezza revenue covenant if unrestricted cash and short-term investments fall below $90.0 million. The company reported compliance as of March 31, 2023.
- Remaining insulin purchase commitments under the Amphastar agreement were approximately $71.2 million through 2027. The balance sheet also included a $104.1 million sale-leaseback financing liability.
- Management stated that available resources, projected Afrezza and V-Go sales, and expected UT royalties and manufacturing revenue should fund operations for at least the next twelve months. The company remains unprofitable and expects continuing operating expenditures.
Material changes versus the prior comparable period
- Revenue growth was driven by the May 2022 V-Go acquisition, the commencement of Tyvaso DPI commercial supply revenue, and the first full comparable period of Tyvaso DPI royalties.
- Net loss narrowed substantially, although the company continued to report a loss and an accumulated deficit of $3.2 billion.
- Operating cash flow turned positive, supported in part by higher revenue and an $8.6 million increase in deferred revenue, but cash generation remains limited relative to debt and contractual obligations.
- Investment balances declined as debt securities matured and proceeds were used to support liquidity; capital expenditures increased to $8.3 million from $5.1 million.
- The company sold 269,383 shares through its at-the-market program for approximately $1.2 million of gross proceeds and issued 10,491 shares to pay approximately $0.1 million of Mann Group note interest.
- The Thirona convertible notes were amended to extend maturity to June 30, 2024, and MannKind committed to fund at least $1.1 million under the amended collaboration development plan.
Outlook, management commentary, risks and unusual items
Management cited increasing demand for Tyvaso DPI and continuing growth in royalty revenue. It also expects ongoing investment in manufacturing, commercialization of Afrezza and V-Go, and pipeline development. No specific quantitative revenue or earnings guidance was provided.
- Manufacturing capacity, quality, supply interruptions, single-source suppliers, and the need to maintain safety stock could affect product availability, margins and UT obligations.
- V-Go manufacturing depends on contract manufacturers in China, creating geopolitical, trade, regulatory, currency and supply-chain exposure.
- Commercial performance depends on market acceptance, payer coverage, rebates, chargebacks and discounts. Commercial product sales had a 42% gross-to-net adjustment, compared with 39% in Q1 2022.
- The company has significant leverage, recurring losses, debt maturities beginning in 2023, a secured credit facility, and substantial insulin purchase commitments. Management stated that additional capital may be needed in the future.
- Afrezza has an FDA-required pediatric study underway. A separate long-term safety study has not commenced and has not been budgeted; management states that the original design could require substantial capital.
- Foreign currency exposure related to euro-denominated insulin commitments could materially affect results; management estimated that a 10% exchange-rate change could affect pre-tax loss by approximately $7.1 million.
- Other unusual items included the $2.4 million inventory write-off, a $1.0 million foreign currency loss, and a $0.1 million gain from a foreign currency hedge.
- Management reported effective disclosure controls 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.
Important facts for investors to verify
- Whether Tyvaso DPI demand, royalties and manufacturing revenue continue to grow and remain sufficient to offset operating costs.
- Afrezza and V-Go prescription trends, gross-to-net deductions, payer coverage and the sustainability of commercial product margins.
- Whether operating cash flow remains positive after capital expenditures, debt service, inventory requirements and insulin commitments.
- Liquidity relative to the $90.0 million MidCap covenant threshold and the start of MidCap principal amortization in September 2023.
- Availability and terms of any future financing, including potential dilution from equity issuance or conversion of convertible notes.
- Progress, cost and regulatory requirements for the INHALE-1 pediatric study and the unresolved long-term Afrezza safety study.
- Manufacturing capacity and supply-chain performance for Afrezza, V-Go and Tyvaso DPI, including reliance on China-based V-Go manufacturers.
- Potential variability in collaboration revenue recognition, deferred revenue balances, royalties, rebates, returns and other gross-to-net estimates.