MannKind (MNKD) investors saw another week of slow script traction with Afrezza. For the week ending March 1st, scripts came in at just over 630 with retail sales of just over $1 million. The rate of sales growth in Q1 of 2019 is far from ideal, and sales are pacing well below what was delivered in Q4 of last year.
As 2019 began, MannKind rolled out a new initiative on the marketing of Afrezza. The company began advertising the drug more heavily on television than it did in the past. In addition, the company trimmed down the areas where it was concentrating sales rep efforts. Simply stated, it appears as though the company has trimmed the sales force and deployed the monies saved to advertising.
In the least 8 weeks, the Afrezza ad has run 1,900 times. Peak advertising thus far is at about 364 ads in a week, while the last two weeks have seen a run rate of about 260 ads run. I estimate that the costs of the campaign thus far have been about $3.8 million
When the new marketing initiative was announced, the company indicated that it would take 6 to 8 weeks to see the results. On its latest call, the company indicated that downloads of co-pay cards were up substantially as were website hits. At this stage, we have not yet seen material impact on retail sales. The latest strategy leaves the door open for yet another attempt. Thus far we have seen various strategies tried:
- Using a contract sales force;
- Sponsoring a Charles Mattocks cable show on diabetes;
- Engaging with Dame Dash to promote the drug;
- A direct hire sales force;
- A direct hire sales force with a very, very small television presence;
- A direct purchase program; and
- Now we see a smaller direct hire sales force with heavier adverting.
The window is now open for more sales reps combined with more ads. The bottom line is that the past efforts have not delivered the desired results, and the current efforts, thus far, are delivering results that are again not optimal. Essentially, a cash strapped MannKind does not have a healthy enough budget to push Afrezza effectively whilst also trying to get a pipeline out from the pre-clinical stage that it has been in over the last two years. The company has tried plan A, plan B, plan C, plan D, plan E, and plan F. The big question is what runs out first, the alphabet or the cash?
Quarter over Quarter
On a quarter-over-quarter basis, the script levels are down 6.43%, while estimated net revenue is up just 2.89%. While it can be argued that Q1 is traditionally week, the dip last year in Q1 was just 1.5% in scripts. The last four weeks of scripts in Q4 of 2018 were 2,724 for an average of 681 scripts per week. Here in Q1 the highest script week was 633. In all likelihood, the Q over Q dip will be between 5% and 8% this year.
Year Over Year
The year-over-year comparisons provide the best talking points for management and will likely be what the company keys in on when it discusses the numbers. The reason that year-over-year presents the better talking points relies on a bit of an apples and oranges shuffling. Last Q1 the company was in the final stages of working the old packing through the system. The retail average a year ago was a bit over $1,200 per script, while the retail price now is about $1,600. Don't get me wrong, the growth in scripts and revenues is real. The issue is that the comparison has a skew in it that investors need to be aware of. While still early in the year, the growth rate trend in 2018 has slightly improved from the growth shown in previous years.
Projections and Estimates
As most readers are aware, I lay out projections and then refine the tracking with estimates based on the data as it comes in. As I have said, my projections for 2019 have been more aggressive than what is actually happening. I project and estimate scripts, retail; sales, gross revenue, net revenue and costs. I have not yet adjusted the script volume in my models, but I have adjusted other metrics. I have lowered the cost per script slightly, raised the retail dollars per script slightly, and raised the gross and net revenue per script slightly. At this stage, I have projected 2019 net revenue for Afrezza as being about $31 million. This would be an improvement of 79% over the net revenue for 2018. Contrast that with the optics of saying that 2018 was over 100% improvement.
Overall, the important number is the net revenue number. The chart below shows us that 17% of the year has passed, and the estimated net revenue is at $3.5 million. With four weeks left in the quarter, this would imply that net revenue will land at about $5.4-$5.6 million. This excludes any revenues for the direct selling program, which will be very modest.
Chart Source - Spencer Osborne (based in part on Symphony data)
This subject always seems to get the dander up of some folks. I want to repeat that discussion of the length of the cash runway is not calling for the company to be bankrupt. It is simply pointing out the time frame in which moves need to be made to bolster the bank balance. The most likely source of needed cash for MannKind comes from either dilution, debt, or a deal. Sales are simply not picking up at the necessary rate.
As of March 1st, I estimate that MannKind has about $57.5 million in cash. Considering likely milestones and cash commitments, the company has enough cash to get just past the end of Q3 of this year. I have seen many confuse the words of the CEO thinking that there is enough cash to get to mid-2020. The CEO indicated a pathway to mid-2020, but that is inclusive of warrants being exercised. Warrants are not cash.
The tough pill to swallow on the warrants is that they expire in December, whilst the cash runway only gets the company to about October. This leaves a gap in time which may need funding. That could translate to another equity offering complete with a new set of warrants as a distinct possibility.
MannKind remains speculative, though recent trading action seems to have established a slightly higher trading range. Some readers seem to feel that the older warrants which expire in April priced at $2.38 will come into play and perhaps get exercised. I place very low odds on that happening. This leaves the $1.60 warrants in play. Current equity prices above $1.60 allows the holders to short down with complete safety. That is the typical play. It can take quite some time to short a large number of shares, so I anticipate this equity to bounce around between $1.60 and $2 until such time that the annual meeting proxy comes out. It is my opinion that this proxy will include a request for additional authorized shares. In addition, as the end of Q1 approaches, the Street will be assessing the effectiveness of the ad campaign. If scripts have not gained in a meaningful way in the next few weeks, the pressure for a plan will begin to mount. MannKind is in a slightly better position than it was at this point last year, but still has a long way to go. Stay Tuned!
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.