Memorandum

MannKind 2Q18 – Afrezza sales >double YOY, rise 12% sequentially to $3.8 million; new data show benefit on time in range, hypoglycemia vs. NovoLog; new Chief Marketing Officer – August 2, 2018

Executive Highlights

  • MannKind reported 2Q18 earnings this afternoon, announcing 2Q18 Afrezza revenue of $3.8 million, representing ~150% YOY growth from $1.5 million in 2Q17 and 12% growth from $3.4 million in 1Q18. With this performance, net revenue for 1H18 comes to $7.2 million (gross revenue $11.9 million), and management reduced its 2018 net guidance from $25-$30 million to $22-$25 million. By our calculation, Afrezza would have to post 75% sequential growth in 3Q18 and 4Q18 to meet the low end of this guidance.

  • In our opinion, Afrezza’s past performance qualifies this $22-$25 million guidance as ambitious, but we do continue to see serious growth potential for the product: FDA removed the product’s REMS program and has approved a label update to reflect Afrezza’s ultra-rapid onset/offset, while new data from the STAT and AFFINITY-1 studies (presented at ADA 2018) indicate significant benefits on time in range, postprandial glucose control, and hypoglycemia with Afrezza vs. NovoLog. Can MannKind leverage the strength of its product into better reimbursement, HCP prescription rates, and patient persistence?

  • MannKind has also hired Ms. Garret Ingram as the company’s new Chief Marketing Officer; she carries market access experience from Dexcom, Sanofi, BMS, and Novo Nordisk. We’re thrilled to see this leader join MannKind’s C-suite, and we have high hopes for what Ms. Ingram could bring to MannKind’s marketing strategy.

MannKind reported 2Q18 earnings this afternoon in a call led by CEO Dr. Michael Castagna. Sales of inhaled insulin Afrezza >doubled YOY (153%) to $3.8 million, climbing from $1.5 million in 2Q17. Sequential growth was 12%, rising from $3.4 million in revenue for 1Q18, when Afrezza posted a 24% sequential decline.

Of note, MannKind moved to a new revenue recognition system in 1Q18; sales are now recognized based on shipments to wholesalers rather than prescriptions dispensed to patients. In a recent investor meeting, MannKind updated its 4Q17 revenue to $3.1 million, well below the previously reported $4.5 million, with the new approach – the reason why sequential performance was so poor in 1Q18, management said. The company also shared that $600,000 of 1Q18 revenue was not recognized under this new practice (that is, quarterly sales for 1Q would have been $4.0 million under the previous methodology).

Admittedly, these changes to MannKind’s accounting and the reports of multiple sales numbers within a quarter make it difficult to pinpoint exactly how Afrezza is faring on the market. Very notably though, management reduced its ambitious financial guidance for 2018 Afrezza net revenue, from $25-$30 million to $22-$25 million. They cited high gross-to-net sales ratios as the driving force of this change; while gross revenue totaled $6.7 million for 2Q18 and $11.9 for 1H18, net revenue is only $7.2 million for the half, which management attributed to significant managed-care rebates, an overhaul of packaging, and company recapitalization. That said, given that Afrezza collected $7.2 million in net sales in 1H18, MannKind’s updated financial guidance still seems optimistic to us; by our calculations, sales would have to climb ~75% sequentially in both 3Q18 and 4Q18 to reach the lower end ($22 million) of this forecast.

Nonetheless, we continue to hope that more patients can benefit from  Afrezza. FDA recently removed the product’s REMS program, which could help bring more prescribers on board, and the product label has also been updated to reflect Afrezza’s ultra-rapid onset/offset. More recently, data from the STAT study indicate significant benefits on time in range and postprandial glucose control with Afrezza vs. NovoLog, translating to less hypoglycemia. There’s also no denying that Afrezza is, for most patients, easier to take, and we’re particularly eager for mealtime insulin use to expand among people with type 2 diabetes.

In 2Q18, MannKind posted a net loss of $23 million overall, significantly below the loss of $35 million in 2Q17 and below 1Q18’s $30 million net loss but obviously still sizable. The company ended 2Q18 with $27 million in cash, cash equivalents, and restricted cash, equivalent to the end of 1Q18 but down from $48 million as of January 1, 2018.

Commercial Strategy

  • International expansion remains a key component of MannKind’s plan to drive Afrezza revenue. Management was particularly excited about its recent marketing and distribution agreement with Cipla for Afrezza in India, which they believe holds great revenue potential – presumably this would be self-pay. Internal efforts in Mexico and Canada were also highlighted, with filings anticipated in 2H18. The company has also signed an international distribution deal with Tanner Pharma Group, for unspecified markets. Lastly, Dr. Castagna noted that FDA has completed inspections of factories in Brazil, where Afrezza is set for 4Q18 approval and 1Q19 launch.

  • After announcing positive time-in-range (STAT) and hypoglycemia (AFFINITY-1) results for Afrezza vs. NovoLog at ADA 2018, management identified the publication and spread of this new data as critical for better physician adoption. According to Dr. Castagna, the STAT trial manuscript should be published in the next few weeks. He noted that this information remains “fairly invisible” as of now, apart from those who attended ADA or read Close Concerns’ reports, and that national publication will be key to spreading the newly demonstrated benefits of Afrezza to the majority of HCPs – we’re curious to see what journal STAT will be published in. We agree that the vast majority of physicians are not fully aware of Afrezza’s benefits over other mealtime insulins, beyond its inhalable nature (if that), and Dr. Castagna has previously emphasized that MannKind is focused on building up the scientific understanding of Afrezza in 2018. While enthusiasm for the product is strong among thought leaders (including Drs. Irl Hirsch, Bruce Bode, and Satish Garg), our sense is that MannKind has faced far more obstacles in broad HCP education and reimbursement than in the quality of the therapy itself.  The KOLs do not seem to be particularly close to the “real world” HCPs.

  • BluHale, MannKind’s new Bluetooth-enabled inhalation monitor, is currently under distribution as an educational tool for clinics but holds potential to become a new revenue driver for the company. The device is, for now, only being given to providers as a training tool for patients; we think it can make a big impact in helping both HCPs and patients become more comfortable dosing Afrezza, potentially promoting prescription volume and refill rates. But Dr. Castagna also noted the great potential of the device to become a future revenue driver, comparing it to Companion Medical’s InPen; if the device monitored and tracked insulin boluses, it could be helpful for patients and providers alike. At Keystone 2018, we got to try BluHale for ourselves; while we found the device very easy-to-use, we do think it’s unlikely that patients will be willing to pay for the device until features like data downloading and dose logging are added. To this end, the company is currently assessing a 510(k) pathway for the device.

Management Updates

  • MannKind recently hired a new Chief Marketing Officer, Ms. Garrett Ingram, who brings tremendous experience in both pharmaceuticals and technology from her time at Dexcom, Sanofi, BMS, and Novo Nordisk. Given her past work in diabetes and expertise in market access strategy and reimbursement, Ms. Ingram could very well bring a new energy and perspective to MannKind’s marketing strategy. Of note, MannKind very recently signed an agreement with Tanner Pharma Group to bring Afrezza to more international markets where the product is not yet registered; another deal has been signed for India with Cipla. We’ll be interested to see whether Ms. Ingram pursues additional external deals, and we’ll be watching to see what new access strategy she might bring to MannKind’s business.

    • On a separate note, we are delighted to see more female representation at the C-Suite level at MannKind. While the company remains one of only six companies we’ve identified in diabetes that still lacks a single woman on its board, the company’s leadership team is now 30% female – which is actually better than most of its peers. We hope to see this momentum carried into equal representation of women across levels of management at MannKind and throughout the field.

 

--by Peter Rentzepis, Ann Carracher, and Kelly Close