The numbers tell the story

The numbers tell the story

Given the amazing rise in the company’s share price one just might think that MannKind (NASDAQ: MNKD) would have announced some over the top outstanding results this afternoon. Well that didn’t happen per the company’s earnings press release: (note Diabetic Investor has enhanced portions of the release with bold and underline, points we consider particularly relevant)

“For the first quarter of 2017, total net revenue of $3.0 million was comprised of $1.8 million from the sale of surplus bulk insulin to a third party and $1.2 million of recognized Afrezza product sales as dispensed to patients. As of March 31, 2017, deferred net revenue included $1.8 million of Afrezza product shipped to the third-party logistics provider and wholesale distributors, but not yet recognized as revenue.

Cost of goods sold was $2.5 million in the first quarter of 2017 compared to $5.2 million in the first quarter of 2016, a decrease of approximately $2.7 million or 52%, due primarily to a $0.7 million decrease in under-absorbed labor and overhead as a result of the reduction in work force, $0.3 million related to the revaluation of inventory and deferred costs of commercial sales, and a reduction of $1.9 million for capitalized costs related to the manufacturing of Afrezza that has not yet been sold in 2017. These decreases are partially offset by $0.3 million of cost of goods sold attributed to commercial product sales which consist of manufacturing costs for Afrezza dispensed to patients.

Research and development expenses were $3.1 million in the first quarter of 2017 compared to $5.1 million in the first quarter of 2016, a decrease of $2.0 million or 39%, due primarily to a decrease in personnel costs including related stock compensation expense of $2.2 million resulting from reductions in staff and decreases in outsourced services of $0.4 million.  These decreases were partially offset by $0.5 million in clinical trial costs.

Selling, general and administrative expenses were $15.4 million for the first quarter of 2017 compared to $7.4 million for the same quarter of 2016, an increase of $8.0 million or 108%. Our former partner was responsible for selling activities in the first quarter of 2016. G&A expenses increased $0.3 million for the first quarter of 2017 as compared to the same quarter of 2016, primarily due to increased spending on regulatory activities associated with Afrezza.

The net loss for the first quarter of 2017 was $16.3 million, or $0.17 per share based on 95.7 million weighted average shares outstanding, compared to the net loss of $24.9 million, or $0.29 per share on 85.8 million weighted average shares outstanding in the first quarter of 2016. The number of common shares outstanding at March 31, 2017 was 95.8 million.

Cash and cash equivalents at March 31, 2017 were $48.0 million, compared to $22.9 million at the end of 2016. During the first quarter of 2017, we received $30.6 million from Sanofi, pursuant to the settlement of the insulin put option, $16.7 million from the sale of a surplus building, and $2.1 million from shipments of Afrezza. Currently, $30.1 million remains available to borrow under the amended loan arrangement with The Mann Group.”

Ok let’s see if we have this right, real sales of Afrezza amounted to $1.2 million for the quarter. The cost of goods for that $1.2 million in sales was $2.5 million. R&D the supposed life blood of the company decreased because of staff reductions yet because they are no longer partnered with Sanofi (NYSE: SNY) and solely responsible for Afrezza, something all the MannKind zealots said was a good thing, has pushed SG&A up to $15.4 million. In summary that means that sales are going nowhere while costs are going through the roof, and this is good news why?

Yes, the company does have cash but given the way they are burning through this cash it won’t be long before they are once again hitting up the capital markets for more money.

So, what did the company have to say this afternoon?

Two items stand out from the slide presentation that accompanied the call on slide 12 it states;

“Lifestyle brand, people in the know are on Afrezza” – Gee we thought we were in the “know” guess not as we’re not using Afrezza

“Patients and caregivers write to us and post publicly about how Afrezza changed their life” – Now that’s sweet too bad this has not translated into what counts – more sales.

The irony here is that the patients who use Afrezza and like it, those people in the know, aren’t the target market for Afrezza. These in the know people are actively engaged with their diabetes management and proactively manage their diabetes. While these people may be in the know they are also the SMALLEST patient population. Simply put for Afrezza to be successful they must reach people who are NOT in the know.

It was quite amusing listening to the company explain away way scripts aren’t getting better, offering a litany of excuses for clearly subpar performance. Afrezza is NOT a new drug anymore, it is well known in the diabetes community and there are benefits to using the drug. Still scripts are disappointing and this is being very kind. Guess there just aren’t that many people in the know.

What we see here is what we have always seen here only it’s getting worse instead of better. There is no question that Afrezza works and when used as designed it can help patients, this has never been the issue. It is also true that Afrezza costs too much to make and reimbursement/formulary is less than favorable, this too is consistent. What’s changed and made the situation worse is with Sanofi gone and the company now solely responsible for Afrezza costs are going through the roof. Just in case anyone needs to be reminded this is not a good thing.

Perhaps this why the company did not take any questions at the end of the call. Perhaps they did not want to answer the tough questions as to why sales aren’t better. Or how they plan to handle these increased costs. Maybe they didn’t want to address why Afrezza still has formulary/reimbursement issues. Basically, what we saw and heard today was the same story just with fancier slides and no questions. Which made us miss the company founder Al Mann even more as Al was always entertaining.

With MannKind the numbers tell the story and no matter how these numbers are looked at or interrupted they aren’t good. We may not be in the know, but we do know this the clock is ticking and unless something dramatic happens and happens quickly, those people in the know won’t have their Afrezza.