2023-08-08 11:29:33 ET
Summary
- MannKind Corporation beats analysts on earnings and revenue in Q2 2023, with a year-over-year increase of 157.3% in revenue.
- Strong demand for Afrezza and Tyvaso DPI contributes to revenue growth.
- The company aims to reach profitability in its Endocrine Business Unit by 2024 and targets revenue of $250 million to $300 million per 10,000 paying patients.
MannKind Corporation Beats Analysts on Earnings and Revenue
This article confirms the Buy recommendation rating given in the previous article as the company is on the right track to bring Endocrine's products into profit.
MannKind Corporation ( MNKD ) shares were up 5.43% to $4.85 apiece on Monday, Aug. 7 in the after-hours market after the release of second-quarter 2023 financial MannKind Corporation Reports 2023 Second Quarter 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 $0.04 as the company reported nil earnings versus the consensus of -$0.04, and it also beat analysts on revenue by $5.66 million. MannKind reported revenue of $48.61 million in the second quarter of 2023, a year-over-year increase of 157.3%.
Strong Demand for Afrezza and Tyvaso DPI Led to Revenue Growth
Commenting on the second quarter 2023 results, Michael Castagna, CEO of MannKind Corporation, highlighted the strong growth in patient demand for Tyvaso DPI and Afrezza and the contribution from manufacturing sales of Tyvaso DPI, which together drove the revenue increase.
A revenue breakdown shows that net revenue from sales of Afrezza -- an inhaled insulin used to improve glycemic control in diabetic adults -- rose 27% year over year to $13.527 million. The company has announced that Afrezza's sales have benefited from higher demand and price for the product.
Afrezza's progress seems quite compelling, and the CEO hinted at continued growth expectations for Afrezza in the Q2 2023 Earnings Conference Call (Seeking Alpha's MannKind Corporation Q2 2023 Earnings Call Transcript).
The CEO emphasized that because of the Medicare law that all insulin products will cost $35 in January 2023, Afrezza received $35 coverage through the standard-of-care rapid-acting insulin, which caused MannKind's total prescriptions [TRxs] and new prescriptions [NRx] to increase significantly.
The CEO is confident that from 2024 onwards, Afrezza can now grow faster than before, with customer satisfaction being the key driver.
Net revenue from the sale of V-Go, which was acquired in the second quarter of 2022, came in at $4.818 million. So, on a year-over-year basis, the change doesn't make sense, but the company believes it has neared the high end of its 12-month guidance for V-Go of $18 million to $22 million. The product is a portable continuous subcutaneous insulin infusion device for adults with diabetes.
In addition to the above products, revenue from collaborations and services grew 91% year over year to $11.211 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, came in at $19 million in the second quarter of 2023. Here, the company reports strong demand from patients.
Gross margin on commercial products increased 800 basis points year-over-year to 72% of total sales in Q2 2023, reflecting the greater impact of Afrezza sales versus V-Go on gross margin.
Operational and Financial Costs
As for total expenses, MannKind reported a 19.2% year-over-year increase in the second quarter of 2023 to $46.89 million. Total expenses were impacted by expenses related to an increase in manufacturing activities for Tyvaso DPI and higher costs related to product pipeline development.
Specifically, the pipeline development expenses were associated with clinical trials of MNKD-101 (the study is called INHALE-101) and two trials of Afrezza called INHALE-1 and INHALE-3.
MNKD-101 is a nebulized formulation of clofazimine, an antibiotic commonly used in leprosy that the company plans to commercialize for the treatment of severe chronic and recurrent lung infections. These include nontuberculous mycobacterial pulmonary disease and idiopathic pulmonary and cystic fibrosis.
The goal of the INHALE-1 study - which was still enrolling patients as of Q2 2023 - is to evaluate the safety and efficacy of inhaled Insulin Afrezza in children and adolescents with type 1.2 diabetes. Results from clinic visits, blood draws and pulmonary function tests are expected in the first half of 2024 as the primary 6-month endpoint. The study is being conducted at more than 35 sites.
The INHALE-3 study aims to evaluate the feasibility of switching from injectable insulin or insulin pumps to inhaled Insulin Afrezza in adults with type 1 diabetes. The study was just beginning to recruit patients.
Total operating expenses were also impacted by personnel and campaign expenses related to the acquisition of V-Go in the second quarter of 2022 as well as higher stock-based compensation, labor costs, and higher professional fees.
In terms of the breakdown of total expenses, the cost of goods sold (up 13.1% year-on-year) accounted for approximately 11.1% of total expenses while the cost of revenue, collaborations, and services (up 8.6% from year on year) was approximately 19.2% of total expenses.
Research and development (up 31.9% year-over-year) accounted for about 13.8% of total expenses, while expenses related to sales activities (down 11.8% year-over-year) accounted for about 29.9% of total expenses.
General and administrative expenses, which accounted for about 25.5% of total expenses, also increased by 17.4% year-over-year.
Interest expense for the second quarter of 2023 totaled ?$6.9 million, an increase of 3.5% year-over-year. Of this, 35% was attributable to the operation of a financing liability, while the 65% remaining portion was attributable to fixed-rate debt securities.
The Financial Condition
As of June 30, 2023, the balance sheet was characterized by $144.35 million in cash and current investments against total debt of approximately $378 million, of which 7% was current and the remaining 93% was long-term debt.
The Altman Z-Score of -13.57 (scroll down to the "Risk" section of this webpage ) places MannKind Corporation's balance sheet in the severe financial distress area, implying the possibility of a bankruptcy event within the next two years.
However, while cash and marketable securities declined only a few million in the second quarter as the item ended the first quarter of 2023 at $166.6 million, the operating income was positive on strong DPI growth and was $2 million and $8 million on a GAAP and non-GAAP basis, respectively.
This means that the actions mentioned by the company in the first quarter of 2023 to support the strong patient demand for Tyvaso dry powder inhalers are beginning to bear fruit and are setting the stage for continued improvements in the relationship between growth engine and cash balance management.
Commenting on the second quarter 2023 financial results, the CEO of MannKind Corporation added :
"We have optimized our commercial operations supporting Afrezza® and V-Go®, which is expected to get our Endocrine Business Unit to profitability starting in 2024."
The Outlook and Key Growth Insights
The rare lung disease business of MannKind Corporation is benefiting from strong patient demand, and with an expected improvement in manufacturing capacity of about 250%, the company is targeting revenue of $250 million to $300 million per 10,000 paying patients, according to the CEO.
Thanks to the Medicare law passed in January 2023, Afrezza is expected to continue to see strong growth rates in TRx and our NRx prescriptions. In the meantime, the company has made the V-Go a key driver for the company as the product appears to be back on track for growth after hitting the tipping point.
The revenue target of the company represents an increase of 1.3 to 1.5x from Q2-2023 on an annualized revenue basis, which is expected to lead to a positive turnaround in adjusted net earnings per share from 2024.
While analysts expect revenue of $202.82 million in 2023 (up 103.28% year over year), $268.96 million in 2024 (up 32.61% year over year), and $367.37 million in 2025 (up 36.59% year over year). Earnings per share are projected to be -$0.10 in 2023, $0.11 in 2024, and $0.34 in 2025.
In addition to the aforementioned read-out of the 6-month primary endpoint in the INHALE-1 pediatric study Afrezza, which is expected in the first half of 2024, the following event could also trigger higher share prices. A phase 1 trial of the nintedanib-based inhaler MannKind 201 for the treatment of idiopathic pulmonary fibrosis is expected to begin in 2024.
MNKD Stock Valuation
Shares of MannKind Corporation were trading at $4.95 apiece in pre-market on Aug. 8 for a market cap of $1.22 billion.
The shares are trading higher than the long-term trend of the 200-day simple moving average of $4.43, the 100-day simple moving average of $4.20, and the 50-day simple moving average of $4.27.
The 14-day relative strength indicator at 60.41 suggests that the shares are neither overbought nor oversold, but they may retrace somewhat going forward as a 13.52% short interest index suggests upcoming bearish sentiment.
After the bearish sentiment, investors should consider a position in this stock as there are several growth catalysts mentioned above. However, remember that setbacks in inhalation therapy trials or demand not developing as expected are always potential business outcomes.
MannKind Wall St. Analysts Rating an average Buy rating on Wall Street, which stems from three Strong Buys, one Buy, and one Hold.
Analysts have also lifted up the price target to $6.60, which implies an upside potential of +43.48% from current levels.
Conclusion
MannKind Corporation released financial results for the second quarter of 2023, which showed a stunning increase in sales thanks to strong demand for the company's products, Afrezza and Tyvaso DPI.
Continued robust patient demand coupled with optimization of commercial operations and increased efficiencies in manufacturing capacity should support revenue growth well beyond the second quarter of 2023, with a positive outcome in terms of net earnings as well expected in 2024.
A pediatric trial of Afrezza -- the drug currently used as inhaled insulin to improve glycemic control in adult diabetics -- should deliver read-outs in the first half of 2024, which could provide upside reasons for MannKind Corporation's stock price.
For further details see:
MannKind's Robust Patient Demand, Operational Efficiency To Drive Revenue Beyond Q2 2023