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5 Questions for MannKind

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MannKind (NASDAQ: MNKD  ) was rather mum on its fourth quarter conference call Tuesday. That's somewhat understandable, with the upcoming Food and Drug Administration advisory committee meeting on April 1 reviewing Afrezza and hopefully a decision from the agency by April 15. Nevertheless, here are five questions that investors need to know the answers to and quotes from the prepared remarks (somewhat) answering the questions.

When are you going to have a partner for Afrezza?
"I will only say at this time that we are pleased with support from Greenhill & Co., and with the progress that we made toward securing a partnership," MannKind President and COO Hakan Edstrom said.

Source: MannKind

Six months ago, MannKind said it hired Greenhill to help it find a partner for its inhaled insulin product Afrezza. I realize these things take time, but with every passing month, it's looking more and more like partners are going to wait for the FDA decision before signing on the dotted line.

I thought the diabetes joint venture between AstraZeneca (NYSE: AZN  ) and Bristol-Myers Squibb (NYSE: BMY  ) might be interested in licensing Afrezza, but since AstraZeneca bought out Bristol-Myers, that seems less likely as it would spread AstraZeneca awfully thin. With Afrezza competing directly with injected insulin from Eli Lilly and Novo Nordisk, those two diabetes specialists might be out. The best fit at this point is probably Merck (NYSE: MRK  ) , which sells megablockbuster diabetes drug Jaunvia. Merck signed a partnership with Pfizer to market diabetes drugs from the pharma giant, so it's clearly interested in expanding its diabetes franchise.

A pre-approval partnership with a sizable upfront payment would give investors additional confidence that Afrezza would be approved since the partner would presumably get to see detailed data from the phase 3 trials that support the current FDA application. Investors only got top-line results last August.

About that data, can we see it before the advisory committee meeting in April?
"That ADA session will be the first scientific meeting at which we will publicly present the full data from our recent Phase III studies," said Alfred Mann, founder, chairman, and CEO of MannKind.

Unfortunately, the American Diabetes Association meeting is in the middle of June, well after the advisory committee meeting. If the company releases the full data before that, the ADA won't accept it for presentation, so I understand the need to wait, but it means investors are going to have to go into the advisory committee meeting with limited information.

Why is the FDA even having an advisory committee meeting?
Alfred Mann: "There's actually FDA guidance which states that first-in-class medical products should be referred to an advisory committee, and we are asking the FDA to approve something that we believe will be the first -- the very first ultra fast-acting insulin."

Of course, that was true when MannKind asked for approval the first two times, and the FDA didn't schedule an advisory committee meeting. There has been a change in leadership of the division that's reviewing Afrezza, so that could be the reason. Considering the drug was rejected the last two times without an advisory committee meeting, it's hard to see scheduling a meeting as a bad sign.

How much cash do you have on hand?
"Our cash and cash equivalents at the end of the year totaled $70.8 million," said MannKind CFO, principal accounting officer, and corporate VP Matthew Pfeffer.

And how much have you been burning through?
Pfeffer again: "Our cash burn during 2013 fluctuated, being $33.5 million in the first quarter, $27.3 million in the second quarter, $33.5 million in the third quarter and $39.2 million in the fourth quarter of 2013. We expect to maintain and potentially accelerate some of the spending in 2014 as we prepare for commercialization of Afrezza."

At least investors could get straight answers to the last two questions; unfortunately, the numbers aren't particularly comforting. MannKind has less than two quarters worth of cash in the bank, although it does have a line of credit with its founder Alfred Mann, which should get the company "into the third quarter of 2014," according to Pfeffer's calculations.

If Afrezza is approved on April 15, MannKind will be just fine. It shouldn't take too long to do a deal with one of the potential partners it's been talking with. A partnership will presumably come with some upfront cash and lower the burn rate as a partner takes over some or all of the cost for launch activities. Worst-case scenario, the company has to raise cash through a secondary, but with an approved drug, MannKind's shares will presumably be worth more, making the dilution more tolerable.

Of course the FDA could delay its April 15 decision. There's only two weeks between the advisory committee meeting and the PDUFA date, so it's entirely possible the FDA might issue a three month extension, especially if the meeting of outside experts isn't straight forward. A thee-month delay would push a decision into mid July, in the third quarter where MannKind has said it'll run out of money.

Considering how many shares he owns, Mann obviously isn't going to let the company go bankrupt with an FDA decision pending, but another loan from the Bank of Al isn't an ideal situation for investors.

The third possibility is that the FDA rejects Afrezza again, which would leave the company in a predicament, potentially having to run more studies with no partner and no money.

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Read/Post Comments (3) | Recommend This Article (7)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 20, 2014, at 9:36 AM, Larry0716 wrote:

    Mannkind would be foolish to sign a partnership agreement if they are confident of approval as they will be in a much stronger negotiating position after approval. Managements' objective is not to "give investors more confidence" but to maximize shareholder value.

  • Report this Comment On February 20, 2014, at 11:45 AM, theeseer wrote:

    Brian your post is decidedly negative for no reason.

    1. Pre Approval Partnership is not an issue the recent CHTP is instructive where a previously rejected drug was approved and now they are getting serious bids for partnerships. This was a known factor with MNKD so the rehash was not news except for a negative spin. Especially since MNKD has an already built a factory and since the potential market is huge Al Mann was not about to give away the store since approval is quite likely and a deal post approval will be more beneficial to shareholders.

    2. Approval and ADCOM being positive is very likely if you bothered to read and quote any of the scientific articles and not articles by "stock guys". Dr. LaMatina the Juvenile Diabetes Association etc. and the fact that all end points of the FDA 3 study were met. As with CHTP the result will be an overwhelming positive vote and fast FDA approval barring politics from competitors. Are you aware of the fact that the FDA is not in the business of approving only drugs that are the very best in each category but those that are safe and effective and provide value to the patient. MNKD and its Afrezza does that easily with a novel inhaler delivery system without needles combined with an ultra fast acting insulin.

    Finally Al Mann has made billions in this very field being involved with the development of the insulin pump. Many companies worldwide will jump in for foreign nations regardless of outcome and Al Mann not only has money he has immense respect and the ability to raise capital if needed. Frankly your lack of in depth research is disappointing.

  • Report this Comment On February 20, 2014, at 12:32 PM, Truth4All wrote:

    You can always count on the uber professional and ultra incompetent "Dr. Orelli" to provide a negative angle for this stock. He clearly has an agenda as any time this thing gets moving, he flies in with a bash article like clockwork.

    My not request would be he not refer to himself as a doctor and to remove that dorky hat in your picture. At least act and present yourself as a professional if you want to be taken seriously.

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Brian Orelli

Dr. Orelli is a Senior Biotech Specialist. He has written about biotech, pharmaceutical, and medical device companies for The Motley Fool since 2007.

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