MANNKIND CORP annual report, FY2021

MannKind Corporation 2021 Form 10-K Summary

Business context and reporting period

MannKind is a biopharmaceutical company focused on inhaled therapies for endocrine and orphan lung diseases. The filing covers the fiscal year ended December 31, 2021, with comparisons to 2020; it is an annual filing rather than a standalone fourth-quarter report.

• Afrezza: FDA-approved inhaled human insulin and the company’s primary commercial product, marketed directly in the United States and through regional partners internationally.
• Tyvaso DPI: Inhaled treprostinil product developed with United Therapeutics (UT). MannKind retains manufacturing responsibility and is eligible for manufacturing margin and low-double-digit royalties on net sales.
• Pipeline: Includes MNKD-101, an inhaled nebulized formulation of clofazimine for nontuberculous mycobacterial lung disease, and other Technosphere-based programs.

Financial performance and key metrics

Metric	2021	2020	Change
Total revenue	$75.4 million	$65.1 million	+16%
Afrezza net product revenue	$39.2 million	$32.3 million	+21%
Collaboration and services revenue	$36.3 million	$32.8 million	+11%
Afrezza gross profit	$22.3 million	$17.2 million	+30%
Afrezza gross margin	57%	53%	+4 percentage points
Loss from operations	$47.0 million	$47.9 million	Improved by $0.9 million
Net loss	$80.9 million	$57.2 million	Loss increased $23.7 million
Basic and diluted loss per share	$0.32	$0.26	Loss per share increased
Cash used in operating activities	$61.7 million	$28.1 million	Use increased $33.6 million

• Gross Afrezza revenue increased 18% to $64.0 million. Gross-to-net deductions were $24.9 million, or 38.8% of gross revenue, compared with $22.1 million, or 40.6%, in 2020.
• Total operating expenses were $122.5 million, including $45.5 million of selling expense, $31.9 million of general and administrative expense, $22.0 million of collaboration and services costs, and $12.3 million of research and development expense.
• Research and development expense increased 97%, primarily due to pipeline development and the INHALE-1 pediatric Afrezza trial. Selling expense increased 32% and general and administrative expense increased 29%, largely from higher personnel, promotional, patient-support and professional costs.
• The 2021 net loss included a $22.1 million non-cash loss on extinguishment of the Mann Group convertible note, partially offset by a $4.9 million gain from forgiveness of the PPP loan. Management’s non-GAAP net loss, excluding these items and a $2.0 million Amphastar amendment fee, was $61.7 million versus $57.2 million in 2020.

Liquidity, capital resources and debt

• At December 31, 2021, MannKind had $124.2 million of cash and cash equivalents, $79.9 million of short-term investments and $56.6 million of long-term investments, or approximately $260.7 million of cash and investments in total.
• Principal outstanding debt was $288.4 million; debt had a net carrying amount of $281.2 million after discounts and issuance costs.
• Debt included $230.0 million of 2.50% convertible senior notes due 2026, $40.0 million under the MidCap credit facility, and $18.4 million under the Mann Group convertible note.
• Material contractual cash requirements totaled approximately $651.3 million, including debt, financing-liability payments and $82.8 million of remaining insulin purchase commitments through 2027.
• Operating cash burn increased materially, while investing activities used $151.5 million, principally for purchases of debt securities and property and equipment. Financing activities provided $270.3 million, primarily from the senior notes offering and the Danbury sale-leaseback.
• The company stated that available resources should fund operations for the next twelve months from the financial-statement issuance date. Longer-term liquidity is expected to depend on Afrezza performance, Tyvaso DPI manufacturing revenue and royalties if approved, available credit and potential additional financing.
• The MidCap facility includes minimum cash and Afrezza revenue covenants, although the filing states the company was in compliance at year-end. The facility also bears interest linked to one-month LIBOR, which is being phased out.

Material changes versus 2020

• Afrezza net revenue and gross margin improved, but increased commercial, research and administrative spending kept the company unprofitable.
• Collaboration revenue increased, primarily from additional UT development work, while related costs increased substantially in preparation for potential commercial Tyvaso DPI supply.
• MannKind issued $230.0 million of senior convertible notes, prepaid $10.0 million of MidCap debt, repaid the $35.1 million Mann Group non-convertible note and converted the $5.0 million 2024 convertible notes into common stock.
• The company completed a November 2021 sale-leaseback of its Danbury facility for $102.3 million. Because the transaction was accounted for as a failed sale-leaseback, the property remained on the balance sheet and a financing liability of approximately $100.5 million was recorded.
• Common shares outstanding increased to approximately 251.5 million at December 31, 2021 from approximately 242.1 million at December 31, 2020.
• The company’s stockholders’ deficit increased to $209.3 million from $180.4 million, and accumulated deficit reached $3.1 billion.

Guidance, outlook, commentary and risks

• UT resubmitted the Tyvaso DPI NDA in December 2021 after an October 2021 complete response letter. The FDA accepted the resubmission in January 2022, but requested additional pulmonary-safety information related to a citizen petition; the review deadline was extended to May 2022. Approval was not assured.
• The company initiated the Phase 3 INHALE-1 pediatric Afrezza trial in the third quarter of 2021 and does not expect completion until 2023 at the earliest.
• The FDA indicated that Afrezza’s required long-term safety study might potentially be addressed through a retrospective analysis or prospective registry, but the final requirements remained subject to further discussions planned for 2022.
• MannKind is expanding Danbury manufacturing capacity for anticipated Tyvaso DPI demand, with expansion costs borne by UT. Manufacturing execution, regulatory inspections and supply-chain reliability remain important contingencies.
• COVID-19 adversely affected Afrezza demand, sales-force access to healthcare providers, clinical development, Brazilian distribution and supply-chain planning. The company expects near-term effects to continue.
• Key risks include limited Afrezza market acceptance, payer coverage and reimbursement pressure, continued operating losses, substantial debt and contractual commitments, potential need for additional capital, dependence on a qualified Amphastar insulin supply, regulatory approval risk, manufacturing concentration at the Danbury facility, intellectual-property disputes, foreign-exchange exposure and cybersecurity threats.
• The company has no established profitability or history of sustained positive operating cash flow and reported a stockholders’ deficit at year-end. Management nevertheless concluded that available resources were sufficient for the next twelve months.
• The company reported no material unresolved staff comments, no material legal-proceeding accruals, and effective disclosure controls and internal control over financial reporting. Deloitte issued unqualified audit opinions.

Most important facts for investors to verify

• Whether Tyvaso DPI received FDA approval by the extended May 2022 review deadline and the resulting timing and economics of commercial manufacturing, royalties and cash receipts.
• Whether Afrezza revenue growth is durable after accounting for gross-to-net deductions, payer coverage, patient assistance and COVID-related sales-force constraints.
• Current cash burn, unrestricted cash and short-term investments, compliance with MidCap covenants, and the availability and conditions of the potential $60.0 million third tranche.
• Ability to service or refinance the $230.0 million senior convertible notes, MidCap facility, Mann Group note, sale-leaseback financing liability and $82.8 million insulin commitment.
• Final FDA requirements, cost and timing for the Afrezza pediatric and long-term safety commitments.
• Actual Tyvaso DPI manufacturing capacity, customer purchase orders and the treatment of UT-related deferred revenue and manufacturing-service economics.
• Potential dilution from approximately 70.0 million anti-dilutive shares related to convertible notes, options, restricted stock units, warrants and other equity awards disclosed at year-end.