Business Context and Reporting Period
MannKind Corporation is a biopharmaceutical company in the development stage, focused on the discovery and commercialization of therapeutic products for diabetes and cancer. Its lead product candidate, AFRESA, is an ultra rapid-acting inhaled insulin. The company submitted a New Drug Application (NDA) to the FDA in March 2009, which was accepted for filing in May 2009. This report covers the quarterly period ended September 30, 2009.
Key Financial Metrics
| Metric | Three Months Ended Sep 30, 2009 | Nine Months Ended Sep 30, 2009 | Balance Sheet (Sep 30, 2009) |
|---|---|---|---|
| Revenue | $0 | $0 | N/A |
| Net Loss | $(45.6) million | $(160.6) million | N/A |
| Operating Expenses | $(42.8) million | $(154.0) million | N/A |
| Cash and Cash Equivalents | N/A | N/A | $53.9 million |
| Marketable Securities | N/A | N/A | $2.6 million |
| Total Current Assets | N/A | N/A | $63.3 million |
| Total Liabilities | N/A | N/A | $291.1 million |
| Stockholders' Equity (Deficit) | N/A | N/A | $(2.4) million |
| Debt: Senior Convertible Notes | N/A | N/A | $112.6 million |
| Debt: Related Party Note | N/A | N/A | $150.0 million |
Note: All figures in millions unless otherwise noted. The company has an accumulated deficit of $1.5 billion since inception.
Material Changes vs. Prior Period
- Revenue: The company generated no revenue for the three or nine months ended September 30, 2009, compared to $20,000 in the same period in 2008.
- Net Loss: Net loss decreased to $45.6 million for the quarter (from $68.5 million in Q3 2008) and $160.6 million for the nine-month period (from $219.7 million in the same period in 2008).
- Operating Expenses: Total operating expenses decreased by 38% for the nine months ended September 30, 2009, compared to the prior year. This was driven by a 59% reduction in clinical costs and a 41% reduction in research costs, largely due to the completion of pivotal AFRESA trials and a reduction in force implemented in April 2009.
- Liquidity: Cash and cash equivalents increased from $27.6 million at December 31, 2008, to $53.9 million at September 30, 2009, primarily due to a common stock offering in August 2009 and borrowings from a related party.
- Debt: Borrowings under the related-party loan arrangement increased from $30.0 million to $150.0 million during the period.
Guidance, Outlook, and Risks
- Outlook: Management believes existing capital resources ($56.6 million in cash/securities plus $200 million available under the related-party loan) will fund operations through at least the end of 2010. However, the company expects to incur additional operating losses and will require significant additional financing to commercialize AFRESA.
- Strategic Partnerships: The company is in discussions with pharmaceutical companies for a strategic collaboration but does not expect to complete a partnership until after receiving an FDA response to the AFRESA NDA.
- Risks:
- Going Concern: Substantial doubt exists regarding the ability to continue as a going concern if additional funding is not secured.
- Regulatory Approval: AFRESA is not yet approved; failure to obtain FDA approval would materially harm the business.
- Competition: Significant competition exists in the diabetes treatment market, and the company lacks a commercial sales force.
- Intellectual Property: Risks related to patent infringement claims and the ability to protect proprietary technology.
Investor Verification Checklist
- Verify the status of the FDA review for the AFRESA New Drug Application (NDA) submitted in March 2009.
- Confirm the terms and availability of the $350 million loan facility with the principal stockholder (The Mann Group LLC), specifically the $200 million remaining availability.
- Monitor progress on strategic business collaboration discussions, as the company relies on partnerships for commercialization.
- Review the company's cash burn rate and the timeline for potential additional equity or debt financing requirements beyond 2010.
- Assess the impact of the related-party loan interest expense on future profitability.