MannKind Corporation — Q2 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 under a collaboration. The filing covers the three and six months ended June 30, 2023; financial statements are unaudited.
Financial performance and liquidity
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Total revenue | $48.6 million, up 157% | $89.2 million, up 189% |
| Commercial product sales | $18.3 million, up 44% | $35.9 million, up 59% |
| Collaboration and services revenue | $11.2 million, up 91% | $22.6 million, up 181% |
| Royalty revenue | $19.1 million versus $0.3 million | $30.7 million versus $0.3 million |
| Operating income (loss) | $1.7 million | $(4.3) million |
| Net income (loss) | $(5.3) million, or $(0.02) per share | $(15.1) million, or $(0.06) per share |
| Net cash from operating activities | Not separately provided | $3.8 million versus $(50.2) million |
Commercial product gross margin improved to 72% in the quarter and 70% year to date, compared with 64% and 69%, respectively, in the prior-year periods. Based on reported figures, total operating margin was approximately 3.5% for the quarter and negative 4.8% year to date; net margin was approximately negative 10.8% and negative 16.9%, respectively.
At June 30, 2023, cash and cash equivalents were $86.2 million, short-term investments were $58.2 million, and long-term investments were $2.3 million. Total current assets were $230.2 million against current liabilities of $97.0 million. Stockholders’ deficit was $260.5 million, compared with $250.5 million at December 31, 2022.
Total debt had a net carrying amount of $274.4 million and principal amount of $278.8 million, consisting primarily of $230.0 million of 2.5% senior convertible notes due March 2026, $40.0 million under the MidCap facility due August 2025, and an $8.8 million Mann Group convertible note due December 2025. MidCap principal repayments begin in September 2023. The company was in compliance with the MidCap financial covenant at quarter-end.
Material changes versus the prior comparable period
- Revenue growth was driven by higher Afrezza and V-Go sales, increased Tyvaso DPI manufacturing and services revenue, and substantially higher Tyvaso DPI royalties.
- Tyvaso DPI royalty revenue increased to $19.1 million in the quarter and $30.7 million year to date, reflecting increased demand reported by management.
- V-Go contributed $4.8 million of revenue in the quarter and $10.0 million year to date; the product was acquired in May 2022.
- Research and development expense increased 32% in the quarter and 43% year to date, primarily due to MNKD-101 development and the Afrezza INHALE-3 post-marketing study.
- Selling expense decreased 12% in the quarter and 4% year to date, partly because an Afrezza primary-care promotional pilot ended in 2022. General and administrative expense increased 17% in the quarter and 24% year to date.
- The company generated positive operating cash flow year to date, compared with significant operating cash use in the prior year, partly due to increased revenue and deferred revenue.
- Accounts receivable increased to $27.8 million from $16.8 million at year-end, while deferred revenue increased to $63.7 million from $39.4 million.
- Property and equipment increased to $69.5 million from $45.1 million, including higher construction in progress. Capital expenditures were $25.2 million year to date.
- Stockholders approved an increase in authorized common shares from 400 million to 800 million and increased equity plan capacity. The company sold 631,383 shares under its at-the-market program for approximately $2.8 million of gross proceeds year to date.
Outlook, commentary, risks and unusual items
Management stated that it expects available resources, product sales, Tyvaso DPI royalties and manufacturing revenue to fund operations for at least the next twelve months. The filing provides no formal revenue or earnings guidance. Management also states that the company is not currently profitable and may require additional debt or equity financing for longer-term needs.
- Remaining insulin purchase commitments under the Amphastar agreement were approximately $69.2 million through 2027. These obligations are denominated in euros and expose the company to foreign exchange risk.
- The company recorded $3.4 million of inventory write-offs year to date, including $1.0 million in the second quarter.
- A $0.9 million gain was recognized on the Thirona available-for-sale investment in the quarter and year to date. The investment’s fair value was $8.4 million at quarter-end.
- A $5.0 million milestone payment, including accrued interest, was recorded for payment in the third quarter of 2023. Up to $60.0 million of additional milestone rights payments remain possible upon specified strategic and Afrezza sales milestones.
- A fire at the MNKD-101 clofazimine contract manufacturer in Germany is expected to delay clinical supply production by three to six months and may affect the planned Phase 2/3 study initiation.
- Management highlights manufacturing capacity, supplier concentration, reimbursement and gross-to-net adjustments, product adoption, regulatory compliance, clinical development, intellectual property, cybersecurity and access to capital as significant risks.
- Afrezza and Tyvaso DPI manufacturing is concentrated at the Danbury, Connecticut facility, while V-Go manufacturing and certain testing and packaging activities rely on contract manufacturers in China.
- The company identified no material legal proceedings and stated that disclosure controls and procedures were effective as of June 30, 2023.
Important facts for investors to verify
- Whether Tyvaso DPI royalty growth and manufacturing revenue remain sustainable and sufficiently offset operating and financing costs.
- The timing and amount of MidCap principal repayments beginning September 2023, including covenant compliance and refinancing requirements.
- Whether cash generation is sufficient to fund debt service, capital expenditures, insulin commitments, milestone payments and ongoing development costs without additional financing.
- The magnitude and durability of Afrezza and V-Go demand after rebates, discounts, chargebacks and other gross-to-net adjustments.
- The impact of the MNKD-101 manufacturing fire on development milestones and future funding needs.
- The recoverability of inventory, deferred revenue and the Thirona investment, as well as exposure to further inventory write-offs and foreign currency losses.
- Potential dilution from convertible notes, equity plans, at-the-market offerings and other shares issuable under outstanding securities.