Memorandum

MannKind 1Q16 – Cash still a concern, new public offering seeks to raise $48 million; 60-70 Afrezza reps to be in field by end of June – May 9, 2016

Executive Highlights

  • MannKind expects cash burn of $30-$36 million per quarter, with ~$28 million remaining as of March 31. The company expects net proceeds of ~$47.5 million from a new public offering of common stock and warrants, announced just after the call. Assuming the offering goes through, MannKind has approximately two to three quarters of cash, plus an additional two or three more through other financial instruments. If an international partnership is signed, that would bring further upside.
  • MannKind still plans to hire its own 60-70 rep US sales force to commercialize Afrezza. Reps will be in the field by the end of June and target 5,000-7,000 endocrinologists and high insulin-prescribing physicians. Q3 and Q4 will be mission critical for the company to ramp sales and show investors some early success.

MannKind reported 1Q16 financial results yesterday in a short 24-minute call led by CEO Matt Pfeffer. We enclose the call’s top six highlights below.

1. Cash is still a major concern. MannKind expects cash burn of $30-$36 million per quarter, with ~$28 million remaining as of March 31. The company expects net proceeds of ~$47.5 million from a new public offering of common stock and warrants (announced just after the call). Assuming the offering goes through, MannKind has approximately two to three quarters of cash, plus probably two or three more with access to a $50 million at-the-market facility and $30 million available to borrow from the Mann Group. The stock has taken a serious hit today, down ~28% to $0.95 per share and a market cap of just over $400 million.

2. Consistent with the update two weeks ago, MannKind plans to hire its own 60-70 rep US sales force to commercialize Afrezza. Reps will be in the field by the end of June and target 5,000-7,000 endocrinologists and high insulin-prescribing physicians. MannKind-branded Afrezza won’t launch until July (Sanofi inventory is still in the channel). Q3 and Q4 will be mission critical for the company to ramp Afrezza sales and show investors some early success.

3. MannKind’s presence at ADA will include six abstracts: four papers related to Afrezza’s PK/PD and two related to safety and efficacy (specifically around pulmonary function). The company has secured a “modest” booth at ADA – great to see this could happen last minute.

4. There is “high interest” in an international partnership for Afrezza, though these conversations are not progressing quickly enough, and the call provided no specifics. This could provide a helpful upfront milestone payment and we would not be surprised to see something announced in the coming quarters.

5. MannKind has established a steering committee of well-respected pediatric diabetes investigators to develop a revised protocol for the Afrezza pediatric study. JDRF will provide input on the protocol, which will be finalized in Q3. The company also intends to initiate “small, fast, inexpensive studies” to demonstrate improved dosing and titration recommendations for Afrezza users. Notably, a time-in-range study using CGM is in the planning process.

6. MannKind is continuing to develop inhaled formulations of epinephrine (asthma and allergic reactions), treprostinil (pulmonary arterial hypertension), and palonosetron (chemotherapy-induced nausea). All are still preclinical and do not sound like major near-term financial catalysts.

Top Six Highlights

1. Cash is still a major concern. MannKind expects cash burn of $30-$36 million per quarter, with ~$28 million remaining as of March 31. The company expects net proceeds of ~$47.5 million from a new public offering of common stock and warrants, announced just after the call. The company also has access to an additional $50 million from an at-the-market facility and $30 million through a loan agreement with The Mann Group. Assuming the offering goes through, MannKind has approximately two to three quarters of cash, plus probably two or three more with the ATM facility and Mann Group Loan. MannKind owes $68.8 million under the Sanofi loan facility, which is fortunately not due until August 2024.

  • The stock has taken a serious hit today, down ~28% to $0.95 per share and a market cap of just over $400 million.

2. Consistent with the update two weeks ago, MannKind plans to hire its own 60-70 rep US sales force to commercialize Afrezza. Reps will be in the field by the end of June and target 5,000-7,000 endocrinologists and high insulin-prescribing physicians. Management highlighted a few strategies to ensure the re-commercialization of Afrezza goes well: (i) identifying a new spirometry solution for providers (minimizing the need for patients to see new doctors); (ii) launch of a new patient reimbursement support hub in July; (iii) a new sample program and starter titration pack that include a wider variety of cartridges (eight- and 12-units); and (iv) hiring a support team of diabetes nurse educators by the end of this month to staff call-in centers and provide patient support and potentially training, community seminars, and help with the spirometry program.

  • MannKind-branded Afrezza won’t launch until July (Sanofi inventory is still in the channel). Distributors will ship existing Sanofi inventory until it’s depleted, and MannKind expects unsold Sanofi inventory at the end of the third quarter will be returned. MannKind will continue to share 35% of the profit/loss of Sanofi sales in the third quarter. MannKind-branded Afrezza sales that start in Q3 will be recorded as revenue going forward.

3. MannKind’s presence at ADA will include six abstracts: four papers related to Afrezza’s PK/PD and two related to safety and efficacy (specifically around pulmonary function). The company has secured a “modest” booth at ADA, very impressive last-minute work to get into the exhibit hall. We look forward to seeing what the new Afrezza marketing looks like.

4. There is “high interest” in an international partnership for Afrezza, though these conversations are not progressing quickly enough, and the call provided no specifics. This should provide a helpful upfront milestone payment, though management sounded disappointed that a deal couldn’t be signed in the needed financing time frame. Selecting the right partner will obviously be critical for MannKind, and we assume there is lots of learning to integrate in a deal structure following the challenges with Sanofi.

5. MannKind has established a steering committee of several well-respected pediatric diabetes investigators to develop a revised protocol for the Afrezza pediatric study. JDRF will provide input on the protocol, and a meeting is expected this week – great to see MannKind reaching outside its walls, and we assume JDRF will have some fantastic input on how to maximize the study design to deliver valuable outcomes. The protocol will be finalized in Q3.

  • The company also intends to initiate “small, fast, inexpensive studies” to demonstrate improved dosing and titration recommendations for Afrezza users. Notably, a time-in-range study using CGM is in the planning process. These studies will draw on the experiences of Afrezza’s most successful patients and prescribers. Management is targeting these studies for publication initially, with potential to evolve into a label expansion study thereafter.

6. MannKind is continuing to develop inhaled formulations of epinephrine (asthma and allergic reactions), treprostinil (pulmonary arterial hypertension), and palonosetron (chemotherapy-induced nausea). All are still preclinical and do not sound like major near-term financial catalysts. Epinephrine was the last program to start but is “rapidly pulling into the lead position” – two formulations have been tested and PK profiles will be evaluated in 2Q16. Four treprostinil formulations are moving into PK profiling, with additional formulation work continuing on all four in 2Q16. Two palonosetron formulations have been tested, and both showed acceptable aerodynamics but will require additional work to improve ambient temperature stability. We hope these non-diabetes drug formulations can help raise money to expand Afrezza’s commercialization, though the balance will be tough to get right – investing in longer-term R&D to expand the drug portfolio vs. short-term investment to successfully re-commercialize Afrezza.

 

-- by Adam Brown and Kelly Close