What happened

Shares of MannKind (NASDAQ: MNKD), a biopharmaceutical company primarily focused on the treatment of diabetes, plummeted 24% in February, according to data from S&P Global Market Intelligence. Despite the company offering a number of upbeat updates, one catalyst provided much of the downside spark.

So what

If investors choose to point their fingers, the blame for another poor month lies with MannKind's decision in early February to announce that it was tinkering with the idea of a reverse stock split, which has since happened. On March 3, MannKind reverse split its common stock 1-for-5.

Worried man looking at a plunging stock chart.

Image source: Getty Images.

Why such indigestion toward the reverse split announcement? Typically, stocks only reverse split after they've been in a long downward spiral and they're at risk of being booted off a reputable stock exchange. With MannKind's stock trading well below $1 per share prior to the split, it was at risk of being booted off of the Nasdaq and onto an over-the-counter exchange, which likely would not have helped its valuation.

It's also worth noting that when companies dip below $1 per share, most institutions and hedge funds won't buy shares. Thus, the reverse split is a defensive maneuver by management to make a company's stock more attractive to institutional investors, as well as remain listed on a reputable stock exchange.

On the plus side, MannKind announced new Titration packs containing varied doses of its Food and Drug Administration-approved inhalable diabetes drug, Afrezza. It also announced that it would be abandoning its contract sales organization in favor of an in-house marketing team for Afrezza.

Now what

While it's encouraging to see MannKind embracing an internal sales team for Afrezza, as well as varied dosing options which might make Afrezza more attractive to physicians and consumers, the company's lead drug is still one of the biggest launch disappointments of all time.

Afrezza inhaler.

Image source: MannKind.

On paper, Afrezza looked as if it could be a blockbuster. It's indicated for type 1 or 2 diabetes, it's an inhalable product (meaning a reduced need for needles), it's fast-acting, and it's metabolized through the body in superior fashion to other insulins. Unfortunately, Afrezza was also pricier than traditional therapies, and it didn't have the rapport with physicians that existing therapies had. This has doomed Afrezza to a pittance in sales since its launch.

Making matters more complicated is the fact that MannKind is slowly whittling away at its available cash and capital. MannKind ended the third quarter with $35.5 million in cash, $30.1 million in credit available from the Mann Group, and $50 million in at-the-market common stock issuances. It also added $16.7 million from the sale of real estate in February and $30.6 million from Sanofi, its former licensing partner for Afrezza. This might sound like a lot of capital, but it's not, given how rapidly MannKind has burned through cash. In all likelihood, MannKind's cash raises mean even more dilution for existing shareholders.

Though MannKind has new ideas up its sleeve, the story continues to remain the same for investors: stay far, far away from MannKind's stock.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.