MannKind Corporation 10-Q Summary
Business Context and Reporting Period
MannKind is a biopharmaceutical company focused on inhaled therapies for diabetes and orphan lung diseases. Its only approved product is Afrezza, an inhaled insulin marketed primarily in the United States. Afrezza commercialization began in Brazil in January 2020 through Biomm; partners in India and Australia had not yet begun commercialization. This filing covers the quarter and six months ended June 30, 2020, compared with the corresponding 2019 periods.
Key Financial Metrics
| Metric | Three Months Ended June 30 | Six Months Ended June 30 |
|---|---|---|
| Total revenue | $15.1 million, versus $15.0 million | $31.3 million, versus $32.5 million |
| Afrezza commercial product revenue | $7.0 million, up 15% | $15.0 million, up 35% |
| Collaboration and services revenue | $8.1 million, down 9% | $16.4 million, down 23% |
| Commercial product gross margin | 47%, versus 29% | 48%, versus 25% |
| Net loss | $10.3 million, versus $12.4 million | $19.6 million, versus $27.3 million |
| Net loss per share | $0.05, versus $0.07 | $0.09, versus $0.15 |
| Cash used in operating activities | Not separately provided | $14.9 million, versus $31.3 million |
At June 30, 2020, cash and cash equivalents were $63.2 million, restricted cash was $0.3 million, and total current assets were $72.6 million. Total assets were $102.8 million, compared with total liabilities of $282.5 million and stockholders’ deficit of $179.7 million. The accumulated deficit was approximately $3.0 billion.
Total debt had a principal amount of approximately $122.6 million and a net carrying amount of $121.7 million. Major obligations included $70.1 million of Mann Group promissory notes, $40.0 million under the MidCap facility, $5.0 million of 2024 convertible notes, a $2.6 million December 2020 note, and a $4.9 million PPP loan.
Material Changes Versus the Prior Comparable Period
- Afrezza revenue increased, driven by higher demand, pricing, product mix, and a $0.2 million shipment to Biomm in the second quarter.
- Gross-to-net deductions represented approximately 41% of gross Afrezza sales in the second quarter and 42% for the first half, reflecting rebates, chargebacks, discounts, returns, and patient assistance.
- Commercial product gross margin improved substantially because of higher sales and lower cost of goods sold.
- Collaboration revenue declined primarily because the United Therapeutics research agreement was substantially completed in 2019. United Therapeutics license revenue increased modestly.
- Selling expense declined $2.1 million in the quarter and $12.6 million for the first half, primarily due to reduced promotional activity and lower television advertising.
- An asset impairment charge of $0.4 million in the quarter and $1.9 million for the first half was recorded for MidCap facility funding commitments that were unlikely to become available.
- Cash increased by $33.3 million during the first half, principally from $19.7 million of treasury-bill proceeds and $28.5 million of financing cash inflows, including equity sales, warrant exercises, and the PPP loan.
- The company issued approximately 7.9 million shares through its at-the-market offering, 7.25 million shares from warrant exercises, and 1.24 million shares to repay the June 2020 note.
Guidance, Outlook, Risks, and Unusual Items
The filing does not provide formal quantitative revenue or earnings guidance. Management expects COVID-19 to continue negatively affecting near-term Afrezza revenue, physician access, sales-force productivity, collaboration activities, clinical development, and access to capital. Management cautioned that first-half and second-quarter Afrezza results should not be used as an indication of the remainder of 2020.
The company disclosed substantial doubt about its ability to continue as a going concern. It is not profitable, has rarely generated positive operating cash flow, and stated that existing resources may not cover obligations over the next twelve months without increased revenue, additional financing, or access to additional MidCap borrowings. The company may need to raise equity or debt, enter collaborations or licensing transactions, sell assets, or reduce operations and development programs.
- The remaining $25.0 million MidCap tranche is subject to Afrezza revenue and United Therapeutics development milestones. Management stated that the Afrezza revenue conditions were unlikely to be achieved.
- The MidCap facility requires minimum unrestricted cash of $15.0 million, increasing to $20.0 million if the additional tranche is funded. The company reported compliance as of June 30, 2020.
- The $2.6 million December 2020 note and other debt maturities create near-term refinancing or repayment risk. The company stated it could lack sufficient resources to meet debt obligations.
- The company had approximately $90.9 million of recognized loss liability related to long-term insulin purchase commitments. Remaining aggregate purchase commitments under the insulin agreement were approximately €80.9 million through 2026.
- Milestone rights could require payments of up to $70.0 million upon specified strategic and sales milestones. The company expected a $5.0 million payment in the second quarter of 2021 if the next milestone was achieved.
- The PPP loan may be forgiven subject to eligibility and documentation requirements; any unforgiven balance must be repaid. The filing also identifies potential SBA review, repayment, penalty, and covenant risks.
- A securities class-action certification matter in Israel remains pending; the company believes the ultimate disposition will not materially affect its financial position, results, or cash flows.
- Foreign-exchange exposure is significant because insulin commitments are denominated in euros. The company recorded a $1.9 million foreign-currency loss in the second quarter and estimated that a 10% exchange-rate change could affect pretax loss by approximately $9.1 million.
Important Facts for Investors to Verify
- Whether Afrezza prescription demand and net revenue recover as COVID-19 restrictions ease, and whether the MidCap minimum revenue covenant remains satisfied.
- The company’s actual cash runway, future operating cash burn, and ability to obtain additional financing on acceptable terms.
- Repayment, refinancing, conversion, or forgiveness outcomes for the December 2020 note, PPP loan, MidCap facility, and other debt.
- Whether the remaining $25.0 million MidCap tranche becomes available and whether related United Therapeutics milestones are achieved.
- The extent of future equity dilution from at-the-market sales, warrant exercises, convertible notes, stock awards, and potential additional capital raises.
- Actual gross-to-net deductions, product returns, payer rebates, and the sustainability of the reported commercial product margins.
- Progress toward the enhanced FDKP manufacturing process and anticipated FDA approval in mid-2021.
- Potential payments under milestone rights, insulin purchase commitments, litigation, and other contingencies.