Company Overview
MannKind Corporation (NASDAQ: MNKD) is a biopharmaceutical company focused on the discovery and development of therapeutic products for diseases such as diabetes. The company’s only approved product, Afrezza, is a rapid-acting inhaled insulin that is used to control high blood sugar in in adults with type 1 and type 2 diabetes. Afrezza received regulatory approval from the FDA in June 2014, and has been available by prescription in the United States since February 2015.
Afrezza relies on MannKind’s proprietary Technosphere technology, a drug delivery platform that allows for the oral inhalation of a range of therapeutics. MannKind was originally formed in 1991, and is headquartered in Westlake Village, California, with manufacturing operations in Danbury, Connecticut.
Pipeline and Products
Current Products
As noted above, Afrezza is used to improve glycemic control in adult patients with diabetes. The product consists of a dry powder formulation of human insulin that is delivered by a small portable inhaler. Administered at the beginning of a meal, Afrezza dissolves rapidly upon inhalation to the lung and delivers insulin quickly to the bloodstream, achieving peak insulin levels within 12 to 15 minutes of administration.
Afrezza uses Technosphere delivery platform, which the company believes could be applied to allow the inhalation of a wide range of therapeutics. MannKind has successfully prepared Technosphere formulations of anionic and cationic drugs, hydrophobic and hydrophilic drugs, proteins, peptides, and small molecules. Technosphere powders dissolve extremely fast after inhalation when the particles contact the lung surface, releasing the drug molecules to diffuse across a thin layer of cells into the arterial circulation, bypassing the liver to provide enhanced systemic exposure.
Pipeline
In January 2016, the company entered into a collaboration and license agreement with Receptor Life Sciences to perform studies on certain compounds used for the treatment of chronic pain, neurological diseases, and inflammatory disorders. Following the successful completion of these studies, Receptor exercised its option to acquire an exclusive license to develop, manufacture, and commercialize inhaled formulations of these compounds using MannKind’s technology.
In June 2017, the company had a pre-IND meeting with the FDA regarding treprostinil, a new treatment for pulmonary arterial hypertension (PAH), a type of high blood pressure affecting the arteries of the lungs and right ventricle of the heart.
Sanofi License
In August 2014, the company entered into a license and collaboration agreement with Sanofi-Aventis, pursuant to which Sanofi became responsible for global commercial, regulatory, and development activities for Afrezza. In January 2016, Sanofi gave notice of its election to terminate the agreement. In connection with this termination, Sanofi forgave a $72 million loan to MannKind, and paid the company more than $40 million in connection to guaranteed payments for future insulin deliveries. However, the loss of Sanofi as a marketing partner had a significant impact on prescription totals:
Source: Company Presentation
As shown above, prescription counts began to fall once Sanofi decided to terminate its license agreement. During the transition period, MannKind employed a contract sales organization before ultimately switching to an internal sales team.
It should be noted that with the termination of the Sanofi agreement, the obligation to perform certain clinical studies reverted to MannKind.
Market Overview
The centers for disease control and prevention estimate that approximately 29 million people had diabetes in 2012. Globally, the International Diabetes Federation estimates that approximately 615 million people had diabetes in 2015, and that number could reach 642 million by 2040.
PAH is estimated to affect more than 250,000 individuals worldwide. Despite the rarity of the disease, there is considerable commercial potential due to the premium price paid for PAH therapies. In 2016, revenues in the global PAH market were approximately $6 billion.
Recent Developments
- On June 29, 2017, MannKind reached an agreement with Deerfield Management Company L.P. to extend the maturity of $10 million of principal from July 18, 2017, to August 31, 2017, and subject to certain conditions, to October 31, 2017. Deerfield will also exchange $5 million of 9.75 percent Senior Convertible Notes due December 2019 for 3,584,230 shares of common stock.
- On June 5, 2017, MannKind engaged Locust Walk to explore strategic alternatives for its non-insulin Technosphere pipeline candidates.
Second Quarter Earnings Review
In the quarter ended June 30, 2017, the company reported revenue of $2.2 million, which consisted of $1.5 million of net sales of Afrezza, $0.1 million in collaboration revenues, and $0.6 million from the sale of certain oncology intellectual property. Net revenue from Afrezza grew 29 percent from the immediately preceding quarter.
Costs of good sold increased 28 percent year-over-year due to a write-down of inventory which was forecasted to become obsolete due to expiration. Conversely, research and development expenses decreased 28 percent year-over-year to $3.1 million due to workforce reductions. Selling, general, and administrative expenses increased to $18.1 million from $11.1 million in the same quarter one year ago. This was primarily attributable to the formation of an internal sales team for Afrezza.
Accordingly, the second quarter net loss was $35.3 million, or $0.35 per share, as compared to a net loss of $30 million, of $0.33 per share, in the second quarter of 2016.
At June 30, 2017, MannKind listed cash and equivalents of $43.4 million and debt equal to $107.3 million. Stockholders’ equity totaled negative $221.2 million. While the company has provided positive revenue guidance for the second half of 2017 (net sales between $6 million and $10 million), the company projects an operating cash burn between $18 million and $24 million.
Stock Influences
- Developments related to the investigational studies of treprostinil;
- Improved sales and adoption of Afrezza;
- Collaboration partnerships for the company’s Technosphere platform and other intellectual property; and
- M&A activity.
Risk Factors
- The company has significant debt, including $10 million scheduled for October 31, 2017. Should the company fail to address its financing situation, it could default on its obligations;
- The success of the company is heavily dependent on Afrezza, which will require substantial additional capital to commercialize;
- The company may not be able to secure international regulatory approval and/or partnerships for Afrezza; and
- The company may not be able to develop any other product candidates using its proprietary technology.
Stock Performance
As of September 1, 2017, shares of MannKind closed at $1.87 after losing nearly 10 percent on the day, yielding a market capitalization of approximately $180 million. Over the past 12 months, the stock has steadily fallen from a high of $4.10 last September, although we note that MannKind did show signs of life in November and December after reaching a settlement with Sanofi. The stock hit a low $0.67 in early May, but has recently settled slightly below $2.00. Overall, MannKind is down 41 percent year-to-date.
Summary
Afrezza has already received FDA approval, is being actively marketed, and has a large addressable market. While the termination of the Sanofi agreement was a setback for prescriptions and sales, MannKind has mobilized a dedicated salesforce to improve adoption. Furthermore, the company’s Technosphere platform could produce valuable licensing partnership opportunities.
The primary issue is cash, and the projected burn rate for the second half of 2017 is significant. MannKind must explore all strategic alternatives for its intellectual property to improve operating cash flow and fortify its balance sheet.
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