2023-07-26 07:00:40 ET
Summary
- MannKind, a biopharmaceutical firm, has shown remarkable growth, with Q1 2023 revenue up 239% year-on-year, primarily due to higher demand for key products.
- Despite substantial debt and a high EV/Sales ratio, MNKD demonstrates potential with its product pipeline, collaborations, and increasing revenues, calling for cautious optimism.
- In the upcoming Q2 earnings, investors should monitor the sales performance of Afrezza and V-Go, pipeline projects, and the company's debt management.
Introduction
MannKind ( MNKD ) is a biopharmaceutical firm specializing in innovative therapies for endocrine and orphan lung diseases. Key products include Afrezza, an inhaled insulin, and V-Go, a wearable insulin delivery device. The firm is also exploring treatments for orphan lung diseases, with Tyvaso DPI approved for pulmonary hypertension and MNKD-101 in development for pulmonary infections. Additionally, MannKind has designed BluHale, a device providing real-time patient usage and inhaler performance data.
In my initial analysis , I viewed MannKind negatively, characterizing it as a source of significant losses for investors. I described Afrezza, its primary product, as nonviable and anticipated its sales would disappoint. Given MannKind's high debt and low cash, coupled with an unjustifiable market capitalization, I perceived the company as overvalued. Consequently, I advised investors to steer clear and initiated a "Sell" rating with a price target of $0.50. Since my "Sell" rating in 2018, MannKind's stock is up an astounding 285%.
Financial Performance
In Q1 2023 , MannKind's total revenue increased to $40.6M, a 239% rise from Q1 2022, primarily driven by higher demand and pricing for Afrezza, the addition of V-Go sales, increased collaboration and services revenue, and growing royalties from Tyvaso DPI. Gross margin was lower at 69% due to the lower margin V-Go addition. Cost of collaborations and services revenue rose to $10.7M, reflecting increased manufacturing for Tyvaso DPI. R&D expenses increased to $5.6M due to product pipeline development, while selling expenses rose slightly to $13.3M due to promotional efforts. General and administrative expenses rose to $10.5M due to higher compensation, headcount, and professional fees. Interest expenses remained consistent with 2022. As of March 2023, the company had $166.6M in cash and equivalents.
Stock Assessment
MannKind is exhibiting promising future growth, with earnings per share [EPS] estimates forecasting positive year-on-year growth and a consistent increase over the next three years. Projected sales also reflect a robust growth trajectory, expected to grow 82.37% in 2023, followed by 47.36% in 2024, and 36.83% in 2025. Earnings revisions show more upward than downward revisions, which typically signifies positive sentiment from analysts.
The company's valuation is a bit trickier, with the absence of traditional metrics such as P/E or Price/Book due to negative or non-material earnings. However, the EV/Sales ratio of 10.81 might suggest the stock is slightly overvalued compared to industry averages.
In terms of growth, MannKind exhibits strong revenue year-on-year growth of 83.44%, and a decent three-year compound annual growth rate [CAGR] of 27.59%. But there's no data on EPS or free cash flow growth, making it hard to assess the company's growth holistically.
Regarding profitability, the gross profit margin is positive at 51.16%, but the negative EBIT and net income margins indicate that the company is still struggling with profitability. The negative return on assets also confirms this.
MannKind's momentum over the past year has been positive, outperforming the S&P 500 index. However, the last six months show a slight decline.
Lastly, the company's capital structure reveals a high debt level of $382.91 million, which is more than double its available cash of $166.14 million. This high debt could be a potential risk to the company's financial health. The market cap of $1.17 billion and an enterprise value of $1.39 billion may suggest that MannKind's equity is being valued fairly in the current market, but the high debt level and negative margins are causes for concern.
Growth Prospects
MannKind management is focusing on various growth initiatives. Firstly, the collaboration with United Therapeutics has led to growing royalty revenues and manufacturing capacity expansion for Tyvaso DPI. Secondly, Afrezza sales are robust, showing a 26% increase over 2022, and a new phase 4 trial is being initiated. Additionally, V-Go, acquired in 2022, has been integrated into the Afrezza sales strategy, and further growth is expected.
In terms of liquidity, MannKind had $167 million in cash at the end of Q1 2023, a decrease of just $6 million from the previous year, while the net loss per share was 60% lower than the previous year. The management foresees improvements in supply capacity, pipeline advancements, and sales force integration as key drivers for sustained growth.
They are also enhancing the understanding of Afrezza's scientific aspects, with three trials expected to release results within the year. For V-Go, prescription growth occurred for the first time in two years, indicating positive growth. Finally, they foresee key milestones in the integration of V-Go with Afrezza sales, the kick-off of the INHALE-3 study, and the launch of the BluHale Viz by Q4 2023.
My Analysis & Recommendation
In conclusion, MannKind has taken meaningful strides in its journey, backed by growing demand for key products, Afrezza and V-Go, and substantial advancements in pipeline treatments. Their collaboration with United Therapeutics has offered a new growth avenue in royalties, and their expansion in manufacturing capacity is an encouraging sign.
Despite earlier reservations about Afrezza, its continued sales growth suggests it may be gaining traction. Moreover, my previous analysis may have underestimated the company's overall value created through its innovative delivery technologies such as BluHale, which has broader applications beyond Afrezza.
However, the firm still has substantial debt and a relatively high EV/Sales ratio, suggesting a cautious approach. As Q2 earnings approach on August 7, investors should keep a close eye on Afrezza and V-Go's sales performance, progression in pipeline projects such as MNKD-101, as well as continued revenue growth from the collaboration with United Therapeutics. It will also be important to monitor management's efforts to manage the company's high debt levels and improve profitability.
While the risks remain, I acknowledge that MannKind has displayed a commendable ability to pivot and leverage its technological strengths in the biopharmaceutical space. Hence, in light of the promising growth signs, I now revise my investment recommendation to "Hold" from my previous "Sell" stance, implying that investors might want to retain their existing positions in the company.
For further details see:
MannKind: Impressive Progress, But In Need Of Strengthened Finances