MannKind Corporation: Q1 2021 Form 10-Q Summary
Business context and reporting period
MannKind is a biopharmaceutical company focused on inhaled therapies for endocrine and orphan lung diseases. Its commercial product is Afrezza inhaled insulin. The company is also developing Tyvaso DPI with United Therapeutics under an exclusive collaboration. This filing covers the three months ended March 31, 2021; the financial statements are unaudited.
Key financial metrics
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Total revenue | $17.4 million | $16.2 million | Up 7% |
| Afrezza commercial net revenue | $8.1 million | $8.0 million | Up 1% |
| Collaboration and services revenue | $9.3 million | $8.2 million | Up 13% |
| Commercial product gross profit | $3.8 million | $3.8 million | Down 1% |
| Commercial product gross margin | 47% | 48% | Down 1 percentage point |
| Loss from operations | $(6.2) million | $(7.1) million | Improved $0.9 million |
| Net loss | $(12.9) million | $(9.3) million | Loss increased $3.6 million |
| Net loss per share | $(0.05) | $(0.04) | More shares outstanding |
| Cash used in operating activities | $(12.7) million | $(11.2) million | Use increased $1.5 million |
- Cash and cash equivalents were $247.8 million at March 31, 2021, compared with $67.0 million at December 31, 2020. The company also held $29.0 million of short-term investments and $1.5 million of long-term investments.
- Cash, cash equivalents and restricted cash totaled $248.0 million at quarter-end.
- Principal borrowings totaled $338.4 million; debt had a net carrying amount of $330.6 million. Stockholders’ deficit was $173.6 million and accumulated deficit was $3.1 billion.
- Current liabilities were $73.1 million, including $25.9 million of current deferred revenue and $8.3 million of current recognized losses on purchase commitments.
- Three wholesale distributors represented approximately 89% of accounts receivable and approximately 82% of gross Afrezza sales for the quarter, creating customer concentration risk.
Material changes versus the prior comparable period
- Afrezza gross sales declined 2%, primarily because Q1 2020 included COVID-19-related stockpiling. Net Afrezza revenue nevertheless increased 1% because gross-to-net deductions declined to $5.5 million, or 40% of gross sales, from $5.9 million, or 43%.
- Collaboration revenue increased primarily from the United Therapeutics license arrangement and the new Vertice Pharma co-promotion agreement. United Therapeutics contributed $9.0 million of Q1 collaboration revenue; Vertice contributed $0.3 million.
- Research and development expense increased 39% to $2.4 million, while selling expense increased 18% to $9.6 million and general and administrative expense increased 26% to $7.8 million, largely reflecting higher personnel and commercial investment.
- Interest expense on notes increased to $5.4 million from $1.1 million, principally because of the new senior convertible notes, the MidCap facility and a milestone obligation.
- A $1.5 million asset impairment recorded in Q1 2020 did not recur. The foreign-currency translation gain increased to $3.8 million from $1.8 million, partly offsetting operating expenses.
- In March 2021, MannKind issued $230.0 million principal amount of 2.50% convertible senior notes due 2026 and received approximately $222.7 million of net proceeds. The notes have an initial conversion price of approximately $5.21 per share.
- MannKind issued approximately 7.0 million common shares during the quarter through debt conversions, equity offerings, employee plans and related transactions. Shares outstanding increased to approximately 249.1 million at March 31, 2021 from 242.1 million at year-end 2020.
Guidance, outlook, risks and unusual items
- No formal revenue or earnings guidance is provided. Management stated that available resources were expected to fund operations for the next twelve months from issuance of the financial statements.
- United Therapeutics submitted the Tyvaso DPI NDA to the FDA in April 2021 and applied a priority review voucher that could result in an FDA decision by December 2021, subject to FDA acceptance and a formal review goal date.
- Subsequent to quarter-end, MannKind repaid $10.0 million of the MidCap facility and repaid the $35.1 million Mann Group non-convertible note plus accrued interest. The MidCap amendment increased potential Tranche 3 availability to $60.0 million, extended the interest-only period and maturity, and modified covenant terms.
- The company achieved a second Afrezza sales milestone during the quarter and was required to make a $5.0 million milestone payment. Up to $70.0 million remains payable under the broader milestone rights arrangement upon achievement of specified milestones.
- The company continues to incur operating losses and negative operating cash flow. Management identifies potential future capital needs, debt-service requirements, and the possibility that additional financing may not be available on acceptable terms.
- COVID-19 continued to restrict sales-force access to healthcare providers and may affect Afrezza demand, manufacturing, clinical development, regulatory inspections and supply chains.
- The company has minimum insulin purchase commitments with Amphastar through 2026 totaling approximately €75.9 million at March 31, 2021. The recognized loss liability on purchase commitments was $89.1 million.
- The company remains exposed to Afrezza commercialization, manufacturing and regulatory risks, including the need for a pre-approval inspection related to Tyvaso DPI and the completion of required post-approval Afrezza studies.
- A pending Israeli securities class-action certification matter related to historical Afrezza disclosures remains unresolved. Management believes the matter is not expected to have a material adverse effect, and no accrual has been recorded.
- A foreign-currency hedge generated a $0.3 million loss, while euro-denominated insulin commitments produced a $3.8 million translation gain. Management estimated that a 10% exchange-rate change could affect pre-tax loss by approximately $8.9 million.
Most important facts for investors to verify
- Whether Tyvaso DPI receives FDA acceptance, priority review and approval on the anticipated timeline.
- Afrezza prescription trends, gross-to-net deductions, payer coverage and compliance with MidCap minimum-revenue covenants.
- Cash burn, remaining liquidity and the company’s ability to service or refinance $338.4 million of principal debt and future milestone obligations.
- The impact of the April 2021 debt repayments and MidCap amendment on liquidity, collateral, covenants and future borrowing capacity.
- The amount of PPP loan forgiveness ultimately approved and any remaining repayment obligation.
- Progress and cost of required Afrezza post-approval studies, Tyvaso DPI manufacturing scale-up and FDA inspections.
- Exposure to the Amphastar insulin purchase commitments, foreign-currency movements and potential inventory or commitment losses.
- Potential dilution from convertible notes, Mann Group conversion rights, warrants, equity offerings and equity-based compensation.