So Much Insulin, So Little Use for It

After MannKind (Nasdaq: MNKD  ) received its second complete response letter from the Food and Drug Administration, it canceled its supply agreement with Merck (NYSE: MRK  ) . There isn't much need for insulin when the FDA won't let you sell the product.

In a Securities and Exchange Commission filing yesterday, we found out how much it's going to cost MannKind to end the contract: $16 million. The payment will be made in two installments after MannKind accepts delivery of an undisclosed amount of insulin. Not that the company appears to really need any extra insulin. It also has a supply agreement with Pfizer (NYSE: PFE  ) .

The punishment could have been worse. When MannKind announced that it was canceling the deal, it said the penalty could potentially be $22.7 million if Merck wasn't able to offload the insulin to someone else.

Still, $16 million is a lot of money for a company that had less than $50 million in the bank at the end of the first quarter. To satisfy the FDA, the company still needs to run two clinical trials that will cost $25 million apiece.

MannKind does have some options for funding other than diluting shareholders through secondary offerings. There's always the potential for a partner for Afrezza, but I don't know who would touch it at this point. Pfizer, Eli Lilly (NYSE: LLY  ) , and Novo Nordisk (NYSE: NVO  ) all dropped inhaled-insulin programs. Even if they or someone else were interested in getting into inhaled insulin, they'd likely be better off waiting until after the next FDA decision. MannKind likely needs an approval in hand to get decent terms from any potential partner.

A better solution would probably be for MannKind to sell off its oncology assets, but I don't know how much it'll be able to get up front for drugs that have been stalled as the company focused on its lead product.

An FDA approval is still possible -- I'd go so far as to say probable -- but investors will need to be very patient and tolerate some dilution if MannKind can't work some additional magic raising cash.

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Fool contributor Brian Orelli holds no position in any company mentioned. Click here to see his holdings and a short bio. Motley Fool newsletter services have recommended buying shares of Pfizer. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (16) | Recommend This Article (3)

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  • Report this Comment On June 29, 2011, at 1:46 PM, c335358 wrote:

    I don't see where it said that Mannkind has to buy the insulin today or even tomorrow. It just says when they buy it and it is delivered they will pay for it. Unless you can show otherwise???

  • Report this Comment On June 29, 2011, at 1:49 PM, c335358 wrote:

    Lastly, It is nice to have settled up with Merck, and interesting that Mannkind is fine with just Pfizer providing insulin. Why Pfizer is providing insulin at such a great deal is the question..only $3million for $10Billion sells worth with options for more..So it appears that the Merck new deal doesnt have a penalty payment nor a dead line to buy the insulin..just when you buy it you pay after delivery is the way I read it..how are you reading it?

  • Report this Comment On June 29, 2011, at 1:58 PM, c335358 wrote:

    I do not see the oncology being "Spun" off but possibly a partnership in the near future imo long Mnkd. Oh..and Pfizer wanted Mannkind stock only for that factory in Germany, but Sanofi stopped Pfizer by paying Cash for the inhaled insulin factory in Germany. So your idea that Pfizer isn't interested in inhaled insulin and company..make no sense to me..Also..the lingering question is what does Sanofi want with a factory that was built specifically for making inhaled insulin??

  • Report this Comment On June 29, 2011, at 6:00 PM, surfish wrote:

    Diabetes, It's an epidemic.

    There is a role for the insulin and MNKD has it.

  • Report this Comment On June 29, 2011, at 6:03 PM, TMFBiologyFool wrote:

    I asked the company about when it will be delivered and they never responded. I don't think this is just an order than MannKind has to fill whenever it feels like. The shelf life of insulin isn't eternal and since there was no penalty for breaking the contract if Merck could find another buyer, investors should play it safe and assume it'll have to pay for it soon (within the next 18 month).

    -Brian

  • Report this Comment On June 29, 2011, at 6:36 PM, c335358 wrote:

    Brian, there are 350million diabetics in the world today. Mannkind has a sweetheart deal that does not require them now to pay a penalty to Merck, and allows them to pay for insulin after it is delivered when they order it. No where does it say that the insulin will be a certain serial numbered insulin with a shelf life. You are fabricating...clearly. The bottom line is Merck and Mannkind agreed to settle, and allow Mannkind to pay for insulin after they receive it and there is nothing that I have seen that you have produced that levels a timeline that is harmful to the company indeed no penalty payment at all is ..GOOD THING..long MNKD

  • Report this Comment On June 29, 2011, at 6:37 PM, c335358 wrote:

    One more thing Brian...don't assume...verify verify verify...if you want to get it right..next time.

  • Report this Comment On June 29, 2011, at 6:39 PM, TMFBiologyFool wrote:

    Just heard back from Matthew J. Pfeffer, MannKind's Corporate Vice President and Chief Financial Officer who said, "We expect the first shipment this month and the second some time next month."

    Guess my 18 months wasn't conservative enough.

    -Brian

  • Report this Comment On June 29, 2011, at 6:40 PM, c335358 wrote:

    Brian, can you assume that the agreement is that they will deliver after FDA approval? Is that outside of the box thinking? I think it is logical..to assume that they moved it out to after approval..no one is saying..so..no one knows but..it is obvious you have an opinion..with no basis in fact...

  • Report this Comment On June 29, 2011, at 6:42 PM, c335358 wrote:

    UPS I assume?

  • Report this Comment On June 29, 2011, at 6:48 PM, c335358 wrote:

    Brian, I think I will stick to the Mannkind website for any information vs. some article on the net.

    If he says it there..then you can say it here..until then..its heresay..

  • Report this Comment On June 29, 2011, at 6:52 PM, TMFBiologyFool wrote:

    c335358, we're talking past each other as we type. See my post at 6:39.

    I was right. Was it a guess? Sure, but it was an educated one based on the facts. There was no reason for Merck to let the insulin it had go bad, and then deliver more insulin after approval. If it could sell the insulin there was no penalty and no need to settle the dispute.

    Sometimes you have to guess because the company is opaque. My opinion is that investors should guess conservatively.

    -Brian

  • Report this Comment On June 29, 2011, at 7:20 PM, c335358 wrote:

    Brian,

    The penalty for cutting off the Merck deal was how much? and no insulin right?

    The new deal is less with insulin right?

    How is that something to worry about?

  • Report this Comment On June 29, 2011, at 7:38 PM, TMFBiologyFool wrote:

    Because on the fourth quarter conference call the company said it was cancelling the deal with Merck because it didn't need the insulin and it has a limited amount of cash.

    Will MannKind make it through to the completion of the two required studies? Almost certainly. But the precarious cash position it's in means investors may own a smaller piece of the pie at that point.

  • Report this Comment On June 29, 2011, at 8:42 PM, NoMoeMoney wrote:

    TMFBiologyFool (Brian)

    You will not convince believers, Mannkind is a cult ! They will be making Billions where Pfizer lost Billions, thats all anyone needs to know, period!

  • Report this Comment On June 30, 2011, at 6:43 AM, surfish wrote:

    Unless you are a billionaire from creating and selling profitable health (think Medtronic) and technology firms, like Mann, you should stick to what you know.

    Which is...?

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