In July 2014, Amphastar entered into a five-year €120m ($133m) agreement to supply MannKind Corporation with recombinant human insulin (RHI) for the inhaled insulin product Afrezza.
MannKind was responsible for a growth in RHI API sales in 2015 – up 120% year-on-year to $26.6m.
However, “MannKind did not purchase the full contractually obligated amount,” Amphastar’s President Jason Shandell told investors in a conference call yesterday.
“In October 2015, MannKind informed us that they were not going to exercise the option to purchase additional quantities of API for 2016,” he said. “Furthermore, we are currently in discussions with MannKind regarding the timing of their future API purchases.”
Since its launch in February 2015, Afrezza has suffered from low sales and in January MannKind’s commercialisation partner Sanofi announced it was pulling out of the deal and returning the rights to the drug.
This led to a turbulent year for Amphastar’s insulin API business, according to CFO Bill Peters. “For most of 2015, our gross margin on RHI API was negative, because our factory was not running at capacity. In the fourth quarter, we hit our capacity as we produced significant amounts for MannKind.”
He also warned stakeholders that shipments of RHI API would be behind previous projections in 2016 due to "uncertain future demand from MannKind" adding that "we have now reduced our production which will lead to negative margins in the short-term.”
According to the supply contract, MannKind can terminate the arrangement after two years without cause or if Afrezza’s approval is withdrawn. If terminated under any other circumstances, MannKind is required to pay the full amount of all unpaid purchase commitments due over the initial term within 60 calendar days.
Amphastar said it is discussions with MannKind for future supply, but stressed that regardless of the outcome pf those talks that its API facility in Eragny-Sur-Epte, France would not be affected. The plant is a former Schering-Plough facility bought in April 2014.
MannKind
MannKind also presented its fourth quarter and end of year results yesterday, announcing net losses of $277m and $368m, respectively.
“The most noteworthy financial event in the fourth quarter was clearly the impairment charges recognized as a result of the continued slow sales of Afrezza by Sanofi through the end of the year which culminated in their decision to return the product to MannKind,” said MannKind CEO Matthew Pfeffer.
“As a consequence we wrote down our Danbury manufacturing facility and wrote off especially all of our raw material and finished goods inventory, including some components not even yet received for which we have purchased commitments.”
The Amphastar obligation was not discussed, but according to an SEC filing, MannKind owed Amphastar $99m as of the end of September last year.