MannKind Corp. (NASDAQ:56400P706) is in deep trouble. Earlier this year, the French biopharma Sanofi (NASDAQ:SNY) returned the commercial rights for MannKind's only product, inhaled insulin Afrezza, due to an extremely disappointing launch that saw the drug pull in less than $6 million in sales during the first nine months of 2015. Making matters worse, MannKind was already behind the eight ball from a financial perspective before Sanofi decided to hit the exits because of Afrezza's lengthy development period that was marked by multiple regulatory setbacks.
The crux of the matter is that MannKind was -- and still is -- poorly equipped to handle Afrezza's commercialization on its own.
Adding to the drugmaker's problems, Afrezza's script data since its relaunch has actually been worse than when Sanofi was handling the drug's launch, according to IMS Health.
That's particularly terrible news for shareholders for two reasons. First off, MannKind's cash runway, at best, appears to extend to perhaps the third-quarter of 2017, meaning that the company desperately needs Afrezza's sales to pick up in a big way and that simply isn't happening right now. And secondly, the company is deeply in debt and still owes $70.3 million just to Sanofi under its secure loan facility and loss sharing agreement with the biopharma.
MannKind's remaining options are limited
To be frank, MannKind may have only one semi-plausible option remaining in order to avoid bankruptcy: sell Afrezza to another biopharma.
The problem is that even an outright divestiture may no longer be feasible at this stage. After all, Sanofi was unable to make Afrezza profitable, despite having extensive resources and a deep understanding of the diabetes drug market, implying that there may be extremely limited interest in this asset among bigger pharmas.
And even if a suitor could be found, it's largely unclear how much Afrezza would actually fetch in a sale. Nonetheless, it's highly doubtful the drug's price tag would be anywhere near enough to solve MannKind's financial woes.
Another complicating factor is that MannKind's deteriorating financial position isn't exactly a secret. Any possible suitors would therefore be wise to simply wait until the biotech declares bankruptcy before stepping in with an offer.
As a real life example, Valeant Pharmaceuticals (NYSE:BHC) was able to buy Dendreon's prostate cancer treatment Provenge, as part of a bankruptcy settlement, for a pittance of what it cost to develop the drug. Specifically, Valeant paid less than two years worth of Provenge's average annual sales to acquire the drug in a bankruptcy fire sale.
And, if we use Valeant's acquisition of Provenge as a rough guide, the biggest hold up facing a possible divestiture of Afrezza becomes readily apparent. In short, Afrezza would be lucky to earn a price tag of even $30 million during an auction as part of a bankruptcy -- giving any interested parties every reason in the world to wait for MannKind to go belly up, as the company still sports a market cap hovering around $250 million.
MannKind's days are numbered
With a sale of its only commercial asset before a bankruptcy filing seemingly unlikely for multiple reasons, and its cash burn nearing terminal velocity, MannKind appears to be making a beeline straight for bankruptcy court.
Having said that, the biotech does have one other option to stave off bankruptcy for the meantime. Specifically, MannKind could perform a ginormous reverse split (reducing its share count to up its share price), and subsequently execute a sizable secondary offering in the neighborhood of $200 million-ish. Such a sequence of events, however, would essentially wipe out current shareholders in a manner similar to a bankruptcy filing -- although this path would at least help MannKind buy some extra time to see if Afrezza's commercial launch can somehow gain traction.
The key takeaway is that this struggling biotech isn't in a position to create value for shareholders right now. In fact, it may be forced to execute a series of value-destroying maneuvers in the near future in order to keep its doors open -- or alternatively, simply accept defeat on Afrezza's commercialization and declare bankruptcy. Either way, investors should keep their distance from this beaten down biotech stock due to its poor outlook moving forward.