MannKind Corporation 2019 Form 10-K Summary
Business Context and Reporting Period
MannKind is a biopharmaceutical company focused on inhaled therapies. Its only approved product is Afrezza, an ultra-rapid-acting inhaled insulin for adults with diabetes. The company also develops the Technosphere inhalation platform and inhaled treprostinil, or TreT, licensed globally to United Therapeutics. This Form 10-K covers the fiscal year ended December 31, 2019; quarterly data includes fourth-quarter 2019 results.
Afrezza was marketed in the United States through MannKind’s specialty sales force. Biomm began commercializing Afrezza in Brazil in January 2020, while partners in India and Australia were preparing regulatory submissions.
Key Financial Metrics
| Metric | 2019 | 2018 | Change |
|---|---|---|---|
| Total revenue | $63.0 million | $27.9 million | +126% |
| Afrezza net product revenue | $25.3 million | $17.3 million | +46% |
| Collaboration and services revenue | $37.7 million | $10.6 million | +257% |
| Afrezza gross profit/(loss) | $5.2 million | $(2.1) million | Improved $7.3 million |
| Afrezza gross margin | 21% | (12%) | Improved |
| Loss from operations | $(44.6) million | $(76.6) million | Improved $32.0 million |
| Net loss | $(51.9) million | $(87.0) million | Improved $35.1 million |
| Net loss per share | $(0.27) | $(0.60) | Improved |
| Cash used in operations | $(88.5) million | $(37.7) million | Higher use |
Gross Afrezza sales were $43.5 million, with $18.2 million of gross-to-net deductions, equal to approximately 42% of gross sales. Collaboration revenue included $31.2 million from the United Therapeutics license agreement and $6.0 million from the related research agreement.
At December 31, 2019, cash and cash equivalents were $29.9 million, short-term investments were $20.0 million, and total cash, cash equivalents and restricted cash were $30.2 million. Total assets were $93.7 million, total liabilities were $284.3 million, and stockholders’ deficit was $190.5 million. Accumulated deficit was approximately $3.0 billion.
Outstanding debt had a principal amount of $120.3 million, consisting primarily of $40.0 million under the MidCap Credit Facility, $70.1 million of Mann Group promissory notes, and $10.2 million of senior notes. Debt carrying value was $118.9 million. Debt maturities included $5.3 million in 2020 and $83.9 million in 2024, before considering potential conversions or other settlement provisions.
Material Changes Versus the Prior Comparable Period
- Total revenue increased primarily because of higher Afrezza demand, price increases, Brazilian shipments, and substantially higher United Therapeutics collaboration revenue.
- Afrezza achieved positive GAAP gross profit and a 21% gross margin, compared with a gross loss and negative 12% margin in 2018.
- Research and development expense declined 21% to $6.9 million, selling expense declined 2% to $46.4 million, and general and administrative expense declined 12% to $28.3 million.
- Cash used in operations increased to $88.5 million, primarily reflecting the net loss, $32.8 million of paid-in-kind interest on Mann Group notes, and a $6.7 million decrease in deferred revenue.
- The company completed a major debt recapitalization in August 2019, repaying the Deerfield facility, establishing the $75.0 million MidCap facility, restructuring Mann Group debt, and exchanging portions of the former 2021 notes for 2024 notes and 2020 notes.
- Common shares outstanding increased to approximately 211.8 million at year-end from 187.0 million, reflecting debt conversions, warrant exercises, and equity issuances.
- Quarterly fourth-quarter 2019 net revenue was $16.0 million and net loss was $14.3 million, compared with $16.0 million of revenue and a $9.7 million loss in fourth-quarter 2018.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
The filing does not provide formal revenue or earnings guidance. Management expects continued spending on Afrezza manufacturing, sales and marketing, and development programs. The company’s near-term outlook depends heavily on increasing Afrezza prescriptions and revenue, expanding international commercialization, and obtaining additional financing.
- Going concern: Management and Deloitte identified substantial doubt about the company’s ability to continue as a going concern. Existing capital resources may not cover obligations for the next twelve months without improved operating cash inflows, access to additional MidCap borrowings, or new financing.
- Financing dependence: The company may need equity or debt financing, strategic collaborations, licensing transactions, or asset sales. Additional financing could be unavailable or highly dilutive.
- Debt and covenant risk: The MidCap facility is secured by substantially all assets, including intellectual property, bears interest at one-month LIBOR plus 6.75% with a 2% floor, and includes minimum cash and Afrezza revenue covenants. Additional $10.0 million and $25.0 million tranches were conditional on milestones. The facility’s exit fee was increased to 7% in December 2019.
- Insulin commitments: The company is dependent on Amphastar as its only qualified Afrezza insulin supplier and had approximately €82.0 million of remaining purchase commitments at year-end, with commitments extending through 2026. The recognized loss liability for purchase commitments was $92.0 million.
- Milestone obligation: MannKind paid $5.0 million after achieving its first Afrezza net sales milestone and recorded $3.4 million of related interest expense. Up to $70.0 million of additional milestone payments remain potentially payable upon specified events.
- Regulatory obligations: The FDA-required pediatric Phase 3 trial for Afrezza was still being designed, and the required long-term randomized trial involving 8,000–10,000 type 2 diabetes patients to assess pulmonary malignancy risk had not commenced.
- Collaboration concentration: United Therapeutics contributed substantial 2019 revenue under the TreT arrangements. Remaining deferred collaboration revenue was approximately $40.8 million at year-end, including $38.4 million related to the UT License Agreement, to be recognized principally through December 2021.
- Litigation: A securities class-action certification matter in Israel remained pending. The company believes ordinary-course legal matters are not expected to have a material adverse effect, but an adverse outcome in the securities matter could result in significant costs.
- Other unusual items: The company recorded a $3.5 million gain on extinguishment of debt, $6.2 million of stock-based compensation, and no inventory write-offs in 2019 compared with $2.2 million in 2018.
Most Important Facts for Investors to Verify
- Whether Afrezza revenue growth and positive product gross margin can continue without disproportionate rebates, chargebacks, patient assistance, and sales and marketing costs.
- Whether MannKind can generate sufficient cash or obtain financing to address its going-concern uncertainty, 2020 maturities, and ongoing operating cash burn.
- Compliance with the MidCap facility’s minimum cash and Afrezza revenue covenants and availability of the remaining borrowing tranches.
- Progress, cost, and regulatory status of the Afrezza pediatric trial and long-term pulmonary malignancy study.
- United Therapeutics’ development progress for TreT, remaining milestone payments, and the timing of deferred revenue recognition.
- Exposure to the Amphastar insulin supply agreement, euro-denominated commitments, and potential foreign-exchange effects.
- Potential dilution from convertible notes, warrants, stock options, and future equity financings.
- Status and potential financial impact of the Israeli securities litigation and other regulatory or intellectual-property matters.