UTHR - MannKind Stock Jumps On Upbeat Q1 2023 Results

2023-05-10 10:47:03 ET

Summary

• MannKind Corporation is a U.S. biopharmaceutical developer and marketer of inhaled therapeutics for endocrine and rare lung diseases in the United States.
• MannKind topped analysts on earnings and revenues on a strong increase in revenue thanks to robust demand for the company's products, particularly Tyvaso DPI.
• Ahead of expected strong demand, MannKind increased the efficiency of its operations and expects higher sales in 2023, increasing the chance for a positive turnaround in net income.
• Additional catalysts for higher MNKD stock prices should come from three clinical trials of Afrezza.

MannKind Corporation Beats Analysts on Earnings and Revenue

MannKind Corporation ( MNKD ) shares are up 4.74% to $3.98 apiece on Tuesday, May 9 in the after-hours market after the release of first-quarter 2023 financial results .

The company is a Danbury, Connecticut-based biopharmaceutical company that develops and commercializes inhaled therapeutics for endocrine and rare lung diseases in the United States.

MannKind topped analysts on earnings by $0.01 as the company reported a net loss of $0.04 versus the consensus of -$0.05, and it also topped analysts on revenue by $3.22 million.

MannKind also beat analysts on revenue by $3.22 million.

Strong Demand for Tyvaso DPI Led to Revenue Growth

Michael Castagna, CEO of MannKind Corporation, commented on the results for the first quarter of 2023 and emphasized the strong demand for Tyvaso DPI which led the revenue growth.

MannKind saw revenue increase by nearly 240% year over year to $40.62 million.

A revenue breakdown shows that net revenue from sales of Afrezza -- an inhaled insulin used to improve glycemic control in adult diabetics -- increased 26% year over year to $12.423 million. The company says Afrezza sales have benefited from higher demand and price for the product, as well as a more favorable factor from cartridge mixes.

Afrezza's progress seems quite convincing considering that, as the CEO recalled , sales of this product usually slow at the beginning of the new year.

Net revenue from the sale of V-Go - which was acquired in the second quarter of 2022 and is a portable continuous subcutaneous insulin infusion device for adults with diabetes - was $5.139 million.

In addition to the above products, revenue from collaborations and services grew 426% year over year to $11.386 million.

Royalties related to sales of Tyvaso DPI, an inhaled dry powder via single-use prefilled cartridges that Silver Spring, Maryland-based biotech company United Therapeutics Corporation ( UTHR ) launched in the second quarter of 2022, totaled $11.678 million for the first quarter of 2023.

The increase in revenue from collaborations and services was due to the fact that commercial production of Tyvaso DPI did not start in the last quarter of 2022, contrary to expectations. While royalty growth related to the sale of Tyvaso DPI benefited from strong patient demand.

The company reported a sequential decrease in gross margin on commercial products by 800 basis points to 69% in the first quarter of 2023 as the gross margin of V-Go, which was added in the second quarter of 2022, was lower than that of Afrezza.

Operational and Financial Costs

As for total expenses, MannKind reported a 40.2% year-over-year increase in the first quarter of 2023 to $46.624 million. Total expenses were impacted by higher production activities for Tyvaso DPI, higher costs related to product pipeline development and additional costs incurred during clinical trials of MNKD-101 and of Afrezza for pediatric indications.

MNKD-101 is a nebulized formulation of clofazimine, an antibiotic commonly used in leprosy that the company plans to commercialize as a treatment for severe chronic and recurrent lung infections. These include nontuberculous mycobacterial pulmonary disease and idiopathic pulmonary and cystic fibrosis.

Total operating expenses were also impacted by promotional activity related to Afrezza and the addition of V-Go in the second quarter, as well as higher stock-based compensation, labor costs and higher professional fees.

As for the breakdown of total expenses, the cost of goods sold accounted for about 12% of the total expenses, the cost of revenue – collaborations and services for about 23%, the research and development for about 12%, and the selling expenses for about 23% 29%, on general and administrative matters accounted for ?23%.

Interest expense for the first quarter of 2023 totaled ?$5.2 million and was approximately flat year-on-year. Of this, 45% was due to the operation of a financing liability while the 55% portion was due to fixed-rate debt securities.

The Balance Sheet

As of March 31, 2023, the balance sheet reported cash and short-term investments of $166.6 million against total debt of approximately $378 million, of which approximately 5.6% is short-term debt and the remaining 94.4% is long-term debt.

The company is burning cash, as evidenced by MannKind's weighted average cost of capital of 10.5% compared to MannKind's ROIC of -60.75%, and is in financial distress areas according to the Altman Z-Score of -13.81, which is implying the possibility for a bankruptcy event within the next two years.

However, the CEO notes that while cash on hand is down just a few million since the end of 2022, its net loss is down more than 60% year over year to $9.795 million in the first quarter of 2023, compared to a net loss of $25.998 million in the second quarter of 2022.

The company anticipates that multiple actions to support strong patient demand for Tyvaso DPI will further improve the relationship between the growth engine and cash balance management.

The Outlook and Key Growth Insights

Michael Castagna, CEO of MannKind Corporation, said:

“I'm excited about our inhaled platform and orphan lung pipeline as we get ready to launch our Phase 2/3 inhaled clofazimine trial for patients in the second half of 2023.”

Additionally, a first major Phase 4 trial is expected to begin in a healthcare area called “Pump Sparing” involving key opinion leaders from more than 20 countries. This will be a head-to-head comparison of Afrezza to the standard of care, while the enrollment phase for this study is scheduled to take place between June and July 2023.

Catalysts for higher stock prices could also be the results MannKind Corporation expects over the next 12 months from two more studies conducted for Afrezza.

These studies are the following: the INHALE-1 study, which is being conducted at more than 35 sites. The INHALE-2 study, which the company refers to as the CIPLA Phase 3 study for India, as MannKind Corporation is a business partner of Mumbai-based drugmaker Cipla Limited based on an exclusive marketing and distribution agreement for Afrezza in India.

The addition of V-Go and strong patient demand for Tyvaso DPI will continue to drive positive revenue momentum in the current quarter and beyond.

The endocrinology business is expected to benefit from the continued increase in patient co-payments beyond the first quarter of 2023 and to break even by the end of this year.

The company has modernized its production operations and improved filling and packaging activities to increase supply capacity by more than 200% from the second half of 2023 in light of continued demand growth.

From a revenue perspective, the company expects annual revenue of $200 million to $240 million (per 10,000 patients), including collaborative services and royalties, while analysts expect revenue of $175.52 million in 2023 (up 75.92% year over year) and $266.50 million (up 51.83% year over year) in 2024.

MNKD Stock Valuation

Shares of MannKind Corporation were trading at $3.80 apiece as of this writing for a market cap of $1 billion.

The shares are trading much lower than the long-term trend of the 200-day simple moving average of $4.22, the 100-day simple moving average of $4.64 and the 50-day simple moving average of $4.17.

The 14-day relative strength indicator at 42.31 suggests that the shares are neither overbought nor oversold but are in an uptrend mode.

Investors should consider taking a position in this stock given the existence of several catalysts that could boost the share price in the period ahead, while current price levels would allow for a modest allocation of funds.

MannKind Corporation has an average Buy rating on Wall Street, which stems from three Strong Buys, one Buy, and one Hold.

Analysts have also issued a price target of $6.40, which implies an upside potential of +68.42% from current levels.

Given these estimates of a stock price rise - and the reasons for a new up leg are not in short supply actually - it may be worth taking the risk with MannKind Corporation. Bearing in mind that setbacks in inhalation therapy trials or a demand that does not develop as desired are always possible business outcomes.

Conclusion

MannKind Corporation has released financial results for the first quarter of 2023, which reported an amazing increase in revenue thanks to strong demand for the company's products, particularly Tyvaso DPI.

The company expects demand to remain robust and against this backdrop has increased the efficiency of its production operations. This should support revenue growth well beyond the first quarter of 2023.

The company should begin the Phase 2/3 trial of inhaled clofazimine in patients sometime in the second half of 2023 to evaluate the product as a treatment for severe chronic and recurrent lung infections.

Three clinical trials of Afrezza, which is currently used as an inhaled insulin to improve glycemic control in adult diabetics, should issue readouts in the coming months that could provide additional catalysts for higher MannKind Corporation stock prices.

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