MannKind Corporation: Q2 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 approved product is Afrezza inhaled insulin. The company also manufactures and develops Tyvaso DPI under its collaboration with United Therapeutics. This report covers the three and six months ended June 30, 2021, compared with the corresponding 2020 periods.
Financial performance and key metrics
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Total revenue | $23.3 million | $15.1 million | $40.7 million | $31.3 million |
| Afrezza commercial sales | $10.0 million | $7.0 million | $18.1 million | $15.0 million |
| Collaboration and services revenue | $13.3 million | $8.1 million | $22.6 million | $16.4 million |
| Loss from operations | $(10.3) million | $(7.9) million | $(16.5) million | $(15.0) million |
| Net loss | $(35.5) million | $(10.3) million | $(48.4) million | $(19.6) million |
| Net loss per share | $(0.14) | $(0.05) | $(0.20) | $(0.09) |
| Operating cash flow | Not separately provided | Not separately provided | $(34.2) million | $(14.9) million |
Afrezza commercial product gross margin was 56% in Q2 and 52% for the first six months, compared with 47% and 48%, respectively, in the prior-year periods. The company reported non-GAAP Afrezza gross margins of 76% for Q2 and 63% year to date after excluding a $2.0 million Amphastar insulin-supply amendment fee.
Q2 revenue increased 54%, driven by a 43% increase in Afrezza net sales and a 64% increase in collaboration and services revenue. Six-month revenue increased 30%, with Afrezza sales up 21% and collaboration revenue up 38%. Three wholesale distributors represented approximately 82% of gross sales for both the quarter and six months.
Liquidity, cash flow, debt and balance sheet
- At June 30, 2021, cash and cash equivalents were $62.5 million, short-term investments were $100.0 million and long-term investments were $39.0 million, for total reported cash and investments of approximately $201.5 million.
- Total principal borrowings were $293.3 million; debt had a net carrying value of $285.1 million. Major obligations included $230.0 million of 2.50% convertible senior notes due 2026, $40.0 million under the MidCap facility and $18.4 million of Mann Group convertible notes.
- The company issued $230.0 million of senior convertible notes in March 2021 and received approximately $222.7 million of net proceeds. It used funds to repay $35.1 million of Mann Group non-convertible notes and $10.0 million of MidCap principal, plus a $1.0 million prepayment fee.
- Investing cash outflows of $144.0 million for the first six months primarily reflected purchases of debt securities and a $3.0 million Thirona convertible note investment. Financing activities provided $173.5 million.
- Stockholders’ deficit was $183.6 million and accumulated deficit was $3.1 billion at June 30, 2021.
- The company stated that its resources were sufficient to fund operations for the next twelve months from issuance of the financial statements, although it remains unprofitable and has rarely generated positive operating cash flow.
Material changes and unusual items
- Net loss increased substantially because of a $22.1 million non-cash loss on extinguishment associated with the April 2021 amendment of the Mann Group convertible note. Excluding this item, non-GAAP net loss was $13.4 million in Q2 and $26.3 million for the first six months.
- The Mann Group convertible note interest rate was reduced from 7.0% to 2.5% and maturity was extended to December 2025. The company also converted $9.6 million of principal and $0.4 million of interest into common stock during the first six months.
- The company entered into a revised United Therapeutics development plan that created four performance obligations and included $50.9 million of consideration. The plan covers Tyvaso DPI research and development, pre-commercial activities, next-generation development and manufacturing-facility expansion.
- Deferred revenue included approximately $20.0 million related to the United Therapeutics arrangement, classified as current. United Therapeutics also provided $5.3 million for equipment, recorded as customer deposits until title transfers.
- In May 2021, MannKind amended its insulin supply agreement with Amphastar, paid a $2.0 million amendment fee and extended the agreement through December 2027. Remaining purchase commitments totaled €74.8 million.
- The $4.9 million PPP loan was forgiven by the SBA on July 28, 2021, after the quarter ended.
- In June 2021, MannKind invested $3.0 million in Thirona and entered into a collaboration concerning a pulmonary-fibrosis compound.
Guidance, outlook, management commentary and risks
United Therapeutics submitted the Tyvaso DPI NDA to the FDA in April 2021. The FDA accepted the application and, using a priority review voucher, was expected to complete review in October 2021. The company anticipated initiating a Phase 3 Afrezza pediatric study in the second half of 2021.
Management emphasized that Afrezza growth depends on continued prescription demand, payer coverage, sales-force execution and manufacturing capacity. COVID-19 continued to affect healthcare-provider access, productivity, prescriptions and potentially clinical and regulatory timelines, although sales representatives had resumed in-person calls where permitted.
- Tyvaso DPI approval, manufacturing scale-up, FDA inspections and commercial launch remain subject to regulatory and operational uncertainty. A third party had submitted a citizen petition asking the FDA to refuse or impose additional requirements on approval.
- The Danbury facility is expected to be the primary manufacturing location for Afrezza and Tyvaso DPI. Capacity, quality, staffing and supplier performance could constrain growth.
- The company remains dependent on additional collaboration revenue and the commercial success of Afrezza. It may need additional capital despite the improved liquidity position.
- The MidCap facility includes a $10.0 million minimum cash covenant and Afrezza-related financial covenants unless specified cash and investment thresholds are met. The facility is secured by substantially all assets, including intellectual property.
- Remaining milestone rights could require up to $65.0 million of future payments upon specified sales or strategic milestones.
- The company remains exposed to foreign-exchange risk on euro-denominated insulin commitments; management estimated that a 10% change in the dollar/euro exchange rate could affect pretax loss by approximately $8.9 million.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. The previously disclosed Israeli securities litigation was dismissed in July 2021.
Important facts for investors to verify
- Progress and final FDA action on the Tyvaso DPI NDA, including outcomes of the Danbury facility inspections.
- Afrezza prescription trends, gross-to-net adjustments, payer coverage and compliance with MidCap revenue covenants.
- Actual cash burn and the timing of potential additional financing relative to the company’s $293.3 million principal debt load.
- Manufacturing capacity expansion, staffing and execution of the United Therapeutics development plan.
- Remaining Amphastar insulin purchase commitments and related foreign-exchange exposure.
- Potential dilution from the senior convertible notes, Mann Group convertible notes, warrants, equity awards and future capital raises.