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MannKind: Q1 2020 Estimates (NASDAQ:MNKD)

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With one week remaining in the first quarter of 2020, MannKind (NASDAQ:MNKD) will finish the first quarter of 2020 with U.S. Afrezza net revenue greater than $7 million and trailing 12-month net revenue greater than $27 million. These revenue numbers allow MannKind to tap the second tranche of $10 million from lender MidCap; Afrezza trailing 12-month net revenue needed to exceed $25,474,000 on March 31 as seen in Schedule 1:

Source: MidCap

MannKind finished 2019 with approximately $50 million. The cash burn rate of approximately $15 million per quarter suggests MannKind finished the first quarter with $35 million.

When MannKind borrowed the first tranche of $40 million, the MidCap agreement required MannKind to reserve $15 million. That requirement decreases MannKind’s cash balance down to $20 million, enough to fund operations through the second quarter. If MannKind taps the second tranche of $10 million, the cash reserve increases to $20 million, this provides sufficient cash to fund operations only one additional month.

MannKind’s CEO Castagna indicated it is eligible for two $12.5 million milestones from the United Therapeutics (NASDAQ:UTHR) collaboration for TreT, and that MannKind has control of when it earns them. If MannKind does earn one $12.5 million milestone, it would provide a pathway through the third quarter. While Castagna’s words are reassuring, drug development is inherently risky.

The MidCap agreement includes a third tranche of $25 million; however there are strings attached such as larger Afrezza 12-month trailing net revenue as seen in Schedule 2:

Without a multi-million dollar order from Brazil or another partnership, the third tranche is out of reach in the near-term and MannKind could see a cash crunch before year end.

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With one week remaining in the first quarter of 2020, U.S. Afrezza scripts will be approximately the same as the fourth quarter of 2019:

Source: John Kastanes

Net revenue since Afrezza’s launch by MannKind in the first quarter of 2017 indicates growth:

Source: John Kastanes

However, much of Afrezza revenue growth is due to increasing prices as seen in the chart below:

Source: John Kastanes

The pricing of Afrezza is orders of magnitude greater than all other insulin products, and with lower coverage by pharmaceutical plans. Despite Afrezza pricing, each script sold generates a loss when selling costs are included.

What investors need to consider

MannKind has depended on dilution and lending to fund operations. MannKind’s financial pathway is at a critical stage: it must receive a multi-million dollar Afrezza order to be able to tap the third tranche of $25 million, earn both $12.5 million milestone payment, or a combination of both to fund operations beyond 2020.

With financial markets in turmoil and an uncertain economy, having to depend on a lender with severe restrictions and no guarantees of earning milestones puts MannKind’s future at risk.

If you are invested in MannKind, you should be prepared for disappointing news. If you are not invested, I cannot recommend buying until MannKind has cash to fund operations beyond 2020. MannKind’s management are not active buyers which suggests a lack of belief in MannKind’s future. If management doesn’t believe MannKind is a good investment, why should you?

Disclosure: I am/we are long MNKD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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