How things can change quickly in the biotech world.

By early May, MannKind Corporation (NASDAQ:MNKD) stock was down a whopping 73% year to date. Since then, the biotech's share price has soared more than 140%. In just the past month, MannKind stock jumped around 40%. 

Believe it or not, MannKind is now one of the hottest biotech stocks on the market. But why is that the case? And can MannKind's sizzling momentum continue?

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In search of a catalyst

It wasn't stellar financial performance that drove MannKind stock higher. On May 10, the company reported a first-quarter loss of $16.3 million on total revenue of $3 million. MannKind followed that up by announcing on Aug. 7 its second-quarter results: a $35.3 million loss on total revenue of $2.2 million.

MannKind underwent some management changes over the past few months that were investors probably liked. Michael Castagna was named CEO on May 31. He had previously served as the company's chief commercial officer and had solid biopharmaceutical management experience before joining MannKind. The company also hired a new CFO and chief commercial officer in July.

While these seemed to be good moves, however, it's hard to directly tie MannKind stock's huge increase to these management changes.  

What about other developments since May? MannKind improved its cash position in a couple of ways. The company drew the remaining $30.1 million under its existing loan arrangement with The Mann Group in late June. MannKind also renegotiated its near-term debt maturities with Deerfield, moving a payment initially due July 18, 2018, back to Oct. 31, 2017. These were only short-term improvements, though, and wouldn't have caused MannKind stock to skyrocket the way it has.

The company announced in June that it had engaged Locust Walk to find strategic partners and investors for its non-insulin pipeline candidates that use the Technosphere drug-delivery platform. MannKind also announced the launch of a study with digital health company One Drop, investigating the use of inhaled insulin Afrezza with One Drop's integrated digital diabetes-care platform. Both of these are positive, but neither announcement would have enough immediate impact to make a big difference in MannKind's stock.

A winning combination 

There really doesn't appear to be a notable catalyst that, by itself, explains why MannKind stock has performed so well in that past few months. Instead, I suspect that several combined factors are influencing the stock's movement.

In my view, one key driver behind MannKind's recent rise is the optimism about the stock from an investor with deep pockets. Billionaire Israel "Izzy" Englander's Millennium Management hedge fund bought nearly 745,000 shares of MannKind in the second quarter. We don't know yet if Englander added to his position in recent months, but it wouldn't be surprising if he has.

It's also quite helpful to MannKind when a Wall Street analyst expresses a positive opinion about the stock. That happened on Aug. 11, when Maxim Group initiated coverage of MannKind with a "buy" rating and price target of $4 -- a huge premium over the current price of the stock.

Maxim analyst Jason Kolbert said MannKind is "transforming the diabetes market with inhalable insulin Afrezza." He added in his comments that MannKind now has the right management team in place, has built commercial infrastructure, and is executing a commercialization strategy that poises the company for a turnaround, which should unlock value for investors." 

These kinds of words certainly tend to give investors more confidence in MannKind. As optimism about the stock grows, it can make life difficult for the biggest pessimists: short-sellers. Here's what has happened with the short interest in MannKind in recent months.

MNKD Short Interest Chart

MNKD Short Interest data by YCharts

I think we're seeing a short squeeze with MannKind to some extent. The company has enjoyed good news from multiple fronts. Investors' interest in MannKind has intensified and has created momentum for the stock price. Short-sellers, in turn, have been covering their positions, which helped drive the stock even higher.

Can the momentum continue?

While MannKind stock has been sizzling hot in recent weeks, things could be cooling down somewhat now. Some Wall Street analysts remain pessimistic about the stock. More importantly, MannKind faces significant challenges in the days ahead.

Probably the biggest challenge is the company's cash position. MannKind had $43.4 million at the end of the second quarter. It expects cash burn of $18 million to $24 million in the third quarter and in the fourth quarter of 2017. The company is yet again close to running out of money.

CEO Michael Castagna said in MannKind's second-quarter conference call that no one at the company is "losing sleep" over this situation, since MannKind has several alternatives for raising capital. One of those ways, however, is by offering more stock -- a move that would dilute the value of existing shares and almost certainly halt the stock's recent momentum. 

It remains to be seen how MannKind will fare over the longer run. For now, though, MannKind can legitimately claim to be one of the hottest biotech stocks around -- something that many would never have predicted. 

Keith Speights has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.