MannKind (NASDAQ: MNKD) is down 18% at 12:40 p.m. EDT after the company said it raised approximately $57.7 million net of expenses by selling 10,166,600 shares of common stock at $6 per share. The biotech closed yesterday at $6.23 after an analyst upgrade sent shares higher, so a pullback to at least the offer price was to be expected, but shares are currently trading under $6.
Despite the stock reaction, raising capital now is a good move by MannKind's management. Shares had more than tripled over the last month thanks to a label revision for Afrezza, its inhaled insulin product. MannKind thinks the label change, which describes the time-action profile by dosage strength, should help doctors see the benefits of patients inhaling its insulin rather than using injected insulin.
Selling shares when the price is high allows MannKind to raise the same amount of capital with fewer shares needing to be sold, which results in less dilution for current investors. There's an old biotech adage, "Raise when you can, not when you have to." But MannKind both "could" because of the large run-up in stock price and "had to" because it ended the second quarter with $43.4 million in the bank. That's the best of both worlds.
Today's influx of cash gives MannKind a longer runway to get Afrezza's sales headed in the right direction. But starting from a base of $1.5 million in the second quarter -- or $2.6 million counting product shipped that hasn't been recognized as revenue yet -- means MannKind has a long road ahead.
To put it in perspective relative to MannKind's valuation, at the second quarter's run rate, the biotech trades at a price-to-sales ratio around 60, even using the more generous $2.6 million number. Exelixis and Seattle Genetics, two biotechs that have drugs with upcoming label changes expected to increase sales, trade at price-to-sales ratios in the 20s. The label change should help MannKind sell more Afrezza, but much of it is already reflected in the stock price.