MannKind Corporation 10-Q Summary
Business context and reporting period
MannKind is a biopharmaceutical company focused on inhaled therapies, including Afrezza inhaled insulin and products using its Technosphere platform. The filing covers the three months ended March 31, 2022, compared with the three months ended March 31, 2021. United Therapeutics’ Tyvaso DPI NDA was resubmitted in December 2021 after a complete response letter, with FDA action expected in May 2022.
Key financial metrics
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Commercial product revenue | $9.8 million | $8.1 million | 21% increase |
| Collaboration and services revenue | $2.2 million | $9.3 million | 77% decrease |
| Total revenue | $12.0 million | $17.4 million | 31% decrease |
| Commercial product gross profit | $7.5 million | $3.8 million | 99% increase |
| Commercial product gross margin | 77% | 47% | 30 percentage-point increase |
| Loss from operations | $21.3 million | $6.2 million | Higher loss |
| Net loss | $26.0 million | $12.9 million | Higher loss |
| Net loss per share | $0.10 | $0.05 | Higher loss per share |
| Net cash used in operating activities | $18.2 million | $12.7 million | Higher cash use |
Afrezza gross sales increased 18% to $16.0 million. The gross-to-net adjustment improved to 38.7% from 40.5%, driven primarily by lower wholesaler fees, anticipated returns and co-pay assistance. Cost of goods sold declined 47% to $2.3 million, partly because manufacturing costs were absorbed across Afrezza and Tyvaso DPI production.
Total expenses increased 41% to $33.2 million. Collaboration-service costs increased 164% to $8.7 million due to manufacturing preparations for Tyvaso DPI. Research and development expense increased 45% to $3.5 million, and selling expense increased 32% to $12.7 million due to promotional activity, territory restructuring and patient support services.
At March 31, 2022, cash and cash equivalents were $67.2 million, short-term investments were $95.2 million and long-term investments were $70.5 million, for total cash, cash equivalents and investments of approximately $233.0 million. Total assets were $308.3 million, total liabilities were $540.4 million and stockholders’ deficit was $232.1 million. Accumulated deficit was $3.2 billion.
Principal debt outstanding was $288.4 million, consisting primarily of $230.0 million of 2.50% convertible senior notes due 2026, $40.0 million under the MidCap facility due 2025 and approximately $18.4 million under the Mann Group convertible note due 2025. The MidCap facility bears interest tied to one-month LIBOR and is secured by substantially all assets, including intellectual property. The company was in compliance with its financial and minimum cash covenants at quarter-end.
Investing activities used $39.5 million, including $56.0 million for debt securities, $5.0 million for the Thirona convertible note and $5.1 million for property and equipment, partially offset by $26.5 million of investment maturities. Financing activities provided $0.8 million, primarily from the market price stock purchase plan. Cash and cash equivalents declined $56.9 million during the quarter.
Material changes versus the prior comparable period
- Afrezza commercial revenue and gross margin improved substantially, but the decline in collaboration revenue more than offset that growth.
- UT-related collaboration revenue declined following completion of certain research and development services. Revenue related to the commercial supply agreement was deferred and is expected to be recognized as product is supplied to UT.
- Tyvaso DPI manufacturing activity increased costs in advance of potential commercialization.
- Interest expense on the new financing liability was $2.4 million in Q1 2022 following the 2021 failed sale-leaseback transaction; no comparable expense was recorded in Q1 2021.
- Interest expense on notes declined to $2.7 million from $6.5 million, primarily because a $3.7 million milestone obligation was achieved in Q1 2021.
- The company recorded a $1.1 million unrealized loss on its Thirona investment in other comprehensive loss.
- Cash and cash equivalents fell from $124.2 million at December 31, 2021 to $67.2 million at March 31, 2022, while investments increased.
Guidance, outlook, risks and unusual items
Management stated that available resources should fund operations for beyond the next twelve months from the filing date. Longer-term liquidity is expected to depend on Afrezza sales, manufacturing revenue and royalties from Tyvaso DPI if approved, and available MidCap credit. The filing does not provide formal revenue or earnings guidance.
Key near-term catalysts and uncertainties include FDA action on Tyvaso DPI, the company’s ability to manufacture sufficient quantities of Afrezza and Tyvaso DPI, continued Afrezza market adoption and payer coverage, and the timing of commercial supply revenue from United Therapeutics.
Material liquidity risks include recurring operating losses, negative operating cash flow, substantial debt maturities, the $10.0 million MidCap minimum cash covenant before Tyvaso DPI approval, potential LIBOR replacement costs, and the possibility of needing additional capital. The company also has approximately $79.3 million of remaining insulin purchase commitments through 2027 and up to $65.0 million of contingent Afrezza milestone payments.
COVID-19, supply-chain disruptions, inflation, the Russia-Ukraine conflict, foreign-exchange movements and regulatory delays could adversely affect operations. A 10% change in the U.S. dollar/euro exchange rate would have affected pre-tax loss by approximately $7.9 million based on the company’s estimate.
The 2021 Danbury sale-leaseback is accounted for as a financing transaction rather than a sale. The related financing liability was $102.9 million at March 31, 2022, and annual rent initially approximates $9.5 million, subject to abatements and escalations. In April 2022, the company extended its office lease for 66 months, with initial monthly payments of $79,543 and a rent concession from February 2023 through March 2024.
Most important facts for investors to verify
- FDA action and commercial launch timing for Tyvaso DPI, including the impact on MidCap covenant requirements and potential manufacturing revenue.
- Whether Afrezza revenue growth can continue and whether the improved 77% commercial gross margin is sustainable.
- Cash burn, investment maturities and the company’s ability to fund operations and debt obligations without additional dilutive financing.
- Compliance with MidCap minimum cash and Afrezza revenue covenants, including the effect of LIBOR replacement.
- Remaining insulin purchase commitments, recognized purchase-commitment liability and potential milestone-rights payments.
- United Therapeutics’ purchase orders and the timing of recognizing the approximately $25.7 million of UT-related deferred revenue.
- Regulatory, manufacturing, supply-chain and payer-coverage risks affecting Afrezza and Tyvaso DPI.