In just over four months in 2017, MannKind Corporation (NASDAQ: MNKD) stock has lost more than half of its value. It seems that nothing can go right for the long-suffering biotech.
Over the weekend, though, MannKind submitted a filing to the Securities and Exchange Commission (SEC) that could provide a hint of something big on the way. Is MannKind getting ready to sell?
Change of control agreements
On Friday, April 7, MannKind submitted an 8-K current report filing to the SEC. This filing stated that the company had entered into change of control agreements on April 6 with its top management team. MannKind CEO and CFO Matthew J. Pfeffer; chief commercial officer Michael E. Castagna; corporate vice president and general counsel David Thomson, Ph.D., J.D.; chief medical officer Raymond Urbanski, M.D., Ph.D.; chief technology officer Joseph Kocinsky; senior vice president and principal accounting officer Rose Alinaya; and chief people officer Stuart A. Tross, Ph.D., were named as the executives entering into these agreements.
Under the change of control agreements, each executive is guaranteed employment for two years following a change of control. In particular, the agreements stipulate that the executives will hold a position with responsibilities similar to what he or she had prior to the change of control, work at the same location as before the change, retain a salary at least equal to his or her previous salary, be eligible for annual performance bonuses, and receive other benefits.
There was also a "golden parachute" provision in the change of control agreements. If an executive is terminated (other than for good cause) or resigns for good reason within two years following a change of control (or prior to, but in anticipation of, the change of control), he or she would be entitled to several benefits, including an 18-month severance, a bonus 1.5 times the size of the average bonus over the previous three years, and health and dental insurance for up to 18 months.
What it means
What does all of this mean? For one thing, it means that MannKind's board of directors is thinking about the possibility that the company could be acquired. It also means that it values the current management team enough to make sure they would be protected in the event of a takeover. Both of these things make sense.
The board certainly needs to be actively considering the prospects of selling the company. MannKind has been trying to do everything on its own since Sanofi (NASDAQ:SNY) threw in the towel on inhaled insulin Afrezza. Even though Sanofi failed in its efforts in marketing Afrezza, another large company with more financial resources could have a better shot at achieving success for Afrezza than MannKind could by itself.
Selling the company could also be in the best interests of MannKind's shareholders. The stock hasn't just lost more than half of its value in 2017 so far. Over the past three years, MannKind's market cap has plunged by 96%. Investors who bought the stock when it first went public and held on have lost 98% of their initial investment. There's virtually no chance to recover these losses, but a sale of the company could help shareholders at least a little.
Someone who hasn't watched MannKind closely might think that a management team that has overseen a stock meltdown like this wouldn't deserve any special favors. However, several of MannKind's executives are relatively new to the company. And while CEO Matthew Pfeffer has been with MannKind since 2008, he didn't become CEO until last year.
More important, MannKind's current executive team seems to have done a pretty good job playing the hand they were dealt. When Sanofi pulled out, no one knew what would happen. Pfeffer not only made several good hires during a very uncertain time, he and his team negotiated a good settlement with Sanofi that brought in much-needed cash. They also kept the stock from being delisted.
In addition, management quickly hired a sales team and began what appears to be a smart marketing campaign for Afrezza. Along the way, MannKind made more progress than Sanofi ever did in securing reimbursement for the inhaled insulin drug from payers. As of February, 70% of Americans with commercial health insurance had access to Afrezza with only minimal or no prior authorizations required.
What it doesn't mean
Although the change of control agreements indicate that MannKind's board is thinking about the potential for a sale, it doesn't mean that an acquisition of the company is imminent -- or even likely. Even if MannKind wanted to sell out, there's no guarantee that a buyer could be found.
That being said, it's possible that a larger company could be willing to make a bet that Afrezza and MannKind's technology could be worth significantly more than what MannKind is trading for now. It would be a gamble, but MannKind's market cap has been battered down so much that the risk would be less now than it would have been earlier.
MannKind shareholders shouldn't get their hopes up of any big acquisition just around the corner. However, they should be at least a little reassured that the board is thinking about the possibility.