MannKind Corporation — Q3 2022 Form 10-Q Summary
Business context and reporting period
Quarterly report for the three and nine months ended September 30, 2022, filed November 8, 2022. MannKind commercializes Afrezza inhaled insulin and, following its May 31, 2022 acquisition of V-Go, a wearable insulin-delivery device. The company also develops and manufactures products using its Technosphere platform, including Tyvaso DPI for United Therapeutics.
United Therapeutics received FDA approval for Tyvaso DPI in May 2022 and began commercialization in June 2022. MannKind receives royalties on net sales and manufacturing revenue or margin on supplies to United Therapeutics.
Financial performance and liquidity
| Metric | Q3 2022 | Q3 2021 | Change |
|---|---|---|---|
| Total revenue | $32.8 million | $22.2 million | Up 48% |
| Commercial product sales | $16.3 million | $9.8 million | Up 67% |
| Collaboration and services revenue | $10.3 million | $12.5 million | Down 17% |
| Royalty revenue | $6.2 million | None | New in 2022 |
| Commercial product gross profit | $11.2 million | $5.9 million | Up 89% |
| Commercial product gross margin | 69% | 61% | Up 8 percentage points |
| Loss from operations | $(9.6) million | $(6.6) million | Loss widened |
| Net loss | $(14.4) million | $(4.4) million | Loss widened |
| Net loss per share | $(0.06) | $(0.02) |
For the nine months ended September 30, 2022, revenue was $63.7 million versus $62.9 million in the prior-year period. Net loss was $69.5 million versus $52.9 million, and loss from operations was $51.3 million versus $23.1 million. Commercial product gross margin improved to 69% from 55%.
Q3 cost of revenue for collaborations and services increased 105% to $12.4 million, primarily due to increased Tyvaso DPI manufacturing activity. Research and development expense increased 13% to $4.1 million, while selling, general and administrative expense increased 32% in aggregate to $22.6 million. Interest expense included $2.5 million on the sale-leaseback financing liability and $2.8 million on notes.
| Balance-sheet and cash-flow item | September 30, 2022 |
|---|---|
| Cash and cash equivalents | $54.3 million |
| Short-term investments | $110.7 million |
| Long-term investments | $12.7 million |
| Total debt principal | $278.8 million |
| Sale-leaseback financing liability | $104.0 million |
| Stockholders’ deficit | $(237.7) million |
| Accumulated deficit | $(3.2) billion |
Cash used in operating activities was $78.3 million for the first nine months of 2022, compared with $49.4 million in the prior-year period. Cash used in investing activities was $10.1 million, including $15.1 million for the V-Go acquisition, while financing activities provided $18.6 million, primarily from $19.4 million of net at-the-market offering proceeds. Cash and cash equivalents declined by $69.9 million from year-end 2021.
Material changes versus the prior comparable period
- V-Go was acquired for $15.1 million in cash plus $0.6 million of estimated contingent consideration. V-Go contributed $5.4 million of Q3 revenue and $7.5 million of nine-month revenue since acquisition.
- Tyvaso DPI generated $6.2 million of Q3 royalties and $6.5 million for the nine-month period, plus $9.9 million and $15.8 million, respectively, from the United Therapeutics commercial supply agreement.
- Afrezza net revenue increased 11% in Q3 and 13% for the first nine months, supported by pricing, demand and improved gross-to-net adjustments.
- Commercial product sales increased substantially, but collaboration and services revenue declined because prior-year United Therapeutics research-and-development services were substantially completed.
- MannKind issued approximately 5.1 million shares through its at-the-market offering for $19.8 million of gross proceeds. Mann Group converted $10.0 million of principal and capitalized interest into 4.0 million shares.
- In August 2022, the MidCap credit facility was amended to replace LIBOR with SOFR. The $40.0 million facility bears interest at one-month SOFR plus 6.25%, subject to a 1% floor and 8.25% cap.
Outlook, commentary, risks and unusual items
Management stated that existing resources should fund operations for beyond the next twelve months, based on cash, investments, operating activities, Tyvaso DPI manufacturing revenue and royalties. The filing does not provide formal quantitative revenue or profitability guidance.
- Management expects continued significant expenditures for manufacturing, sales and marketing, research and development, interest and other operating needs.
- The company remains unprofitable and has rarely generated positive operating cash flow. Management states that additional capital may be required, although the reported liquidity assessment supports funding beyond twelve months.
- Debt maturities include $230.0 million of 2.5% senior convertible notes due March 2026, $40.0 million under the MidCap facility due August 2025 and approximately $8.8 million under the Mann Group convertible note due December 2025.
- The MidCap facility includes a trailing twelve-month Afrezza revenue covenant if unrestricted cash and short-term investments fall below $90.0 million. The company reported compliance as of September 30, 2022.
- A $5.0 million Afrezza sales milestone payment was made in Q3. Up to $60.0 million remains payable under the milestone-rights agreement upon achievement of specified future sales milestones.
- The recognized loss on insulin purchase commitments was $70.2 million at September 30, 2022. Remaining purchase commitments with Amphastar extend through 2027 and are denominated in euros.
- COVID-19, supply-chain constraints, Chinese manufacturing exposure for V-Go, single-source suppliers, manufacturing capacity and regulatory compliance could affect product availability and margins.
- The company relies heavily on United Therapeutics for collaboration, royalty and Tyvaso DPI supply revenue. United Therapeutics represented substantially all collaboration and services accounts receivable at September 30, 2022.
- Foreign-exchange movements related to euro-denominated insulin commitments produced an $8.3 million gain for the first nine months. Management estimates a 10% exchange-rate movement could affect pre-tax loss by approximately $7.0 million.
- Management concluded that disclosure controls and procedures were effective and reported no material change in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Whether Afrezza, V-Go and Tyvaso DPI sales and royalties can grow enough to reduce the company’s substantial operating cash burn.
- The timing and funding of the $230.0 million senior convertible note maturity and other debt obligations.
- Compliance with the MidCap Afrezza revenue covenant if cash and short-term investments decline below $90.0 million.
- The sustainability of the reported 69% commercial product gross margin amid manufacturing expansion, inventory write-offs and supply-chain risks.
- United Therapeutics’ Tyvaso DPI demand, royalty trajectory, purchase orders and long-term supply agreement performance.
- The final purchase-price accounting for V-Go and the potential for up to $10.0 million of sales-based milestone payments.
- The accuracy of gross-to-net reserves, product-return estimates and payer rebates, which materially reduce reported commercial product revenue.
- The company’s ability to satisfy approximately $70.2 million of recognized insulin purchase commitments and its broader liquidity needs without further dilutive financing.