MannKind Corporation 2020 Form 10-K Summary
Business context and reporting period
MannKind is a biopharmaceutical company focused on inhaled therapies for endocrine and orphan lung diseases. Its principal approved product is Afrezza, an inhaled insulin for adults with diabetes. The filing covers the fiscal year ended December 31, 2020, with comparisons to 2019; it is an annual report rather than a standalone fourth-quarter filing.
- Afrezza was commercialized in the United States and launched in Brazil by partner Biomm in January 2020.
- United Therapeutics is responsible for developing and commercializing Tyvaso DPI, while MannKind is responsible for manufacturing supplies. United Therapeutics expected to submit a Tyvaso DPI NDA to the FDA in April 2021.
- MannKind acquired QrumPharma in December 2020, adding QRM-003, an inhaled clofazimine program for nontuberculous mycobacterial lung disease.
- MannKind entered a co-promotion agreement for Thyquidity and expected to begin promotion in the first quarter of 2021.
Financial performance and liquidity
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Total revenue | $65.1 million | $63.0 million | 3% increase |
| Afrezza commercial net revenue | $32.3 million | $25.3 million | 28% increase |
| Collaboration and services revenue | $32.8 million | $37.7 million | 13% decrease |
| Commercial product gross profit | $17.2 million | $5.2 million | 230% increase |
| Commercial product gross margin | 53% | 21% | Up 32 percentage points |
| Loss from operations | $(47.9) million | $(44.6) million | Higher loss |
| Net loss | $(57.2) million | $(51.9) million | Higher loss |
| Net loss per share | $(0.26) | $(0.27) | Improved per share |
| Cash used in operating activities | $(28.1) million | $(88.5) million | Lower cash burn |
| Cash and cash equivalents | $67.0 million | $29.9 million | Increase |
| Total principal debt | $122.9 million | Not clearly provided in the same presentation | — |
Gross Afrezza sales increased 25% to $54.5 million. Gross-to-net deductions were $22.1 million, or 41% of gross sales, compared with $18.2 million, or 42%, in 2019. The commercial margin improvement reflected higher sales, lower manufacturing spending and the absence of a $2.8 million insulin supply agreement amendment fee incurred in 2019.
Total expenses increased 5% to $113.1 million. Significant 2020 items included a $13.2 million in-process research and development charge related to the QrumPharma acquisition, a $1.9 million impairment of a MidCap-related commitment asset, and an $8.0 million foreign-currency translation loss related to euro-denominated insulin commitments.
Investing activities provided $15.2 million, primarily from the sale of treasury bills. Financing activities provided $49.9 million, including $23.5 million from at-the-market equity sales, $11.6 million from warrant exercises, $10.0 million from the MidCap Credit Facility and $4.9 million from a Paycheck Protection Program loan.
Material changes versus 2019
- Afrezza net revenue grew substantially, but COVID-19 restrictions limited sales-force access to healthcare providers and are expected to continue affecting near-term revenue.
- Collaboration revenue declined because the United Therapeutics research agreement was substantially completed in 2019; 2020 collaboration revenue was primarily associated with the Tyvaso DPI license agreement.
- Commercial product gross margin improved from 21% to 53%, while the company remained loss-making.
- Selling expense declined 26%, primarily because of lower television advertising and reduced promotional activity during the pandemic.
- Operating cash burn fell materially from $88.5 million to $28.1 million, partly because of collaboration-related cash receipts and changes in deferred revenue.
- Debt increased through the additional $10.0 million MidCap borrowing and the $4.9 million PPP loan. Debt obligations also continued to be settled partly through equity issuance.
- Shares outstanding increased from approximately 211.8 million at year-end 2019 to 242.1 million at year-end 2020, reflecting equity offerings, debt conversions, warrant exercises and the QrumPharma acquisition.
Guidance, outlook, risks and unusual items
- Management did not provide a conventional numerical revenue or earnings forecast. It expects continued operating losses and significant expenditures for manufacturing, Afrezza commercialization and pipeline development.
- The filing states that substantial doubt exists about MannKind’s ability to continue as a going concern. Available cash may not cover obligations over the next twelve months without increased Afrezza revenue, access to additional MidCap funding or new financing.
- The MidCap facility permits a potential additional $25.0 million advance between October 2021 and March 2022, subject to Tyvaso DPI milestones and other conditions. It requires at least $30.0 million of unrestricted cash and compliance with monthly trailing Afrezza revenue covenants.
- Failure to satisfy debt covenants could accelerate repayment and allow lenders to pursue collateral, including equipment, inventory and other secured assets.
- The company had $95.3 million of recognized losses on insulin purchase commitments at December 31, 2020 and remaining euro-denominated purchase commitments of €77.9 million through 2026. A 10% change in the dollar/euro exchange rate could have affected pretax loss by approximately $9.5 million.
- Afrezza remains the company’s only approved product and its commercial success is central to liquidity and debt repayment. Market acceptance, payer coverage, pricing, competition and manufacturing reliability remain material uncertainties.
- FDA-required post-approval studies remain significant obligations, including a planned pediatric Phase 3 trial and a required five-year randomized trial involving 8,000 to 10,000 patients to assess pulmonary malignancy risk. The long-term trial had not commenced by year-end.
- COVID-19 may continue to disrupt sales activity, manufacturing, clinical development, supply chains, healthcare-provider access and capital markets.
- In February 2021, MannKind entered a non-binding letter of intent to sell and lease back part of its Danbury facility for approximately $95 million to $105 million. The proposed transaction was subject to definitive agreements and due diligence and was not assured of completion.
- In February 2021, the company converted the $5.0 million 2024 convertible notes into 1,666,667 common shares, an event occurring after the reporting date.
Most important facts for investors to verify
- Whether Afrezza revenue growth is sufficient to meet MidCap minimum-revenue covenants and reduce cash burn.
- Whether the company can obtain additional financing or complete the proposed Danbury sale-leaseback on acceptable terms.
- Whether United Therapeutics submits and obtains FDA approval for Tyvaso DPI, and whether MannKind can manufacture commercial quantities.
- The timing and conditions for access to the remaining $25.0 million MidCap tranche.
- The amount and timing of required debt repayments, milestone payments and insulin purchase commitments.
- The ultimate status of PPP loan forgiveness and any related regulatory review or repayment obligation.
- Progress, cost and results of the required Afrezza post-approval studies.
- The effect of payer rebates, returns, chargebacks and patient assistance on reported Afrezza net revenue.
- The dilution impact of equity financing, debt conversions, warrants and other potentially issuable shares.