Drug Deal Extends MannKind’s Life Expectancy

Once again, MannKind Corp. is back from the brink of death. The Westlake Village pharmaceutical firm has signed a licensing agreement valued at up to $105 million with United Therapeutics for Mannkind’s Treprostinil Technosphere, a treatment that pairs Mannkind’s proprietary drug delivery system with a compound used for treating a lung disease called pulmonary arterial hypertension, or PAH. Pending Federal Trade Commission approval, in which United Therapeutics will handle commercialization of the technology, the deal will give Mannkind a $45 million upfront payment – money it urgently needs to replenish its cash reserves, which by the end of the second fiscal quarter had fallen to the point where some questioned whether bankruptcy was imminent. “What this really does is prove that Mannkind’s technology platform that we’ve invested in for over 20 years is valuable and does do something unique and different,” Dr. Michael Castagna, chief executive of Mannkind, told the Business Journal in an interview. “It gives us the cash flow to make Afrezza successful, which also makes Mannkind successful.” Beyond diabetic market The new partnership between Mannkind and Silver Spring, Md.-based pharmaceutical firm United Therapeutics marks the beginning of Mannkind’s foray into revenue streams beyond its inhalable insulin Afrezza, its main commercial product. The firm’s finances have long been plagued by slow sales of the drug, a consequence of attempting to break into the lucrative but hard-to-crack diabetes market, Ahmed Enany, chief executive of the Southern California Biomedical Council, explained. “The diabetes market is a tough market,” Ahmed said. “It’s a conservative market – endocrinologists aren’t going to shift from one modality of providing treatment to others so easily.” Mannkind – the last of 17 companies founded by billionaire entrepreneur Alfred Mann – has struggled from the start. It took three attempts before the Afrezza gained approved from the U.S. Food and Drug Administration. Prescriptions for the medication have yet to take off. The annual return on investment for shares of the publicly traded company, which is listed on the Nasdaq under the ticker MKND, have averaged an annual loss of nearly 20 percent over the past 10 years. Time and time again, naysayers have spelled doom for the company as the its debt climbed and its cash reserves dwindled. “The big thing that’s been an overhang on the company and the stock was the debt load on the company, the product sales of Afrezza and, ultimately, how the company was going to recapitalize,” Castagna said. Reactions to the firm’s most recent quarterly report were no different – with a net loss of $22.7 million and cash reserves of only $26.8 million, the company was at risk of violating the terms of its agreement with creditor Deerfield, which stipulate that reserves cannot fall below $20 million. However, the company has paid back about 80 percent of the debt due for the next three years, including about $60 million this year, according to Castagna. “We really reduced all our near-term obligations to allow us to financially run the company,” Castagna said. “The next question is, how do you do this with the stock price at $1.11?” The share price of Mannkind nosedived 23 percent the day after the company released its second-quarter earnings. The fall was accompanied by some stockwatchers’ concerns that in order to avoid bankruptcy, MannKind would have to initiate a reverse stock split followed by another secondary offering. But with the United Therapeutics deal in hand, that’s likely no longer on the table, Castagna said. “We don’t expect to have to dilute shareholders,” Castagna said. “We think (the deal gives us) enough money to get the company to cash flow breakeven.” Drug delivery model In addition to the $45 million upfront, Mannkind stands to receive another $10 million for research and development and up to $50 million more in milestone payments, as well as low double-digit royalties from net sales once the product hits the market, according to the company. Mannkind could also make an additional $40 million and royalty payments for each compound that it develops in collaboration with United Therapeutics for PAH. Seeking Alpha blogger Spencer Osborne, a frequent critic of Mannkind, acknowledged that the deal is good news for the firm. “Simply stated, this is a positive for MannKind,” Osborne said in a post on Sept. 5. “While it is not the ultimate solution, it is a big step in a good direction.” Mannkind began experimenting with treprostinil last year, Castagna said. The compound is used to dilate blood vessels in patients with PAH, a disease that causes high blood pressure in the arteries between the heart and lungs. Mannkind completed a Phase 1 clinical trial with healthy patients in June. Under the deal with United Therapeutics the drug will go to Phase 3 trials, as the safety of treprostinil in PAH patients and MannKind’s delivery system have already been demonstrated. “It’s hard to make this stuff, but it becomes a lot easier once you have proven capabilities,” he said. “I think we have a very clear pathway that’s not very high risk.” Mannkind has been developing compounds besides insulin for the past decade, Castagna noted. The ideal molecules are those that need a quick onset for relief of symptoms, such as anxiety, erectile dysfunction and migraine. These treatments are typically given in pill form, which has a much slower absorption than through the lungs. In theory, Mannkind’s technology could provide faster relief. “We already know we can formulate several of these items,” Castagna said. “You’ll start to see more of that shape up over the next six to 12 months.” It makes sense for Mannkind to consider other opportunities to pair treatments outside of diabetes with its delivery platform in case revenue from Afrezza is not enough to sustain the company, said Enany at the Biomedical Council. “It’s a good deal, because it provides them with alternatives and infuses revenue resources into Mannkind,” Enany said. “It also creates excitement on the Street. … I think they are on the right track here.” Future outlook For shareholders, the deal with United Therapeutics is a sign that there is more to Mannkind than Afrezza. Still, it will be some time before the new partnership reaps revenue – something investors may be considering based on the trajectory of the firm’s stock price. Shares rose nearly 90 percent on Sept. 4 to close at $2.08 but later slipped back to $1.80. Shares closed Sept. 12 at $1.75. “Part of the sell-off could be attributable to the fact that it will still take quite some time before the treprostinil product is on the market, and the cash runway still needed to be addressed,” said Osborne of Seeking Alpha. To that end, Mannkind is working on building out its sales team for Afrezza. “I get a lot of questions on how we’re going to accelerate growth of Afrezza,” Castagna said. “What people really don’t appreciate is that we haven’t had any extra cash since I’ve been here.” The current situation is a far cry from where the company was when Castagna took over as chief executive in May 2017. Shares were trading at 50 cents following a 5-for-1 reverse stock split earlier that year. At the time, the company had $60 million in payments due within 12 months. It was spending between $15 million and $20 million a year on interest, which it has reduced to about $3 million a year, Castagna said. “It’s really a good turnaround story – we brought Mannkind back from the brink of disappearing last summer,” Castagna said. Besides cutting down the company’s debt, rebuilding its management team and relocating from Valencia to Westlake Village, the company also began putting treprostinil in patients – a decision that has obviously paid off, he noted. “We did all of this when the company was struggling financially,” Castagna said. “We made the right short-, mid- and long-term tradeoffs for the company.”