After gaining more than 40% Thursday on a possible short squeeze, MannKind Corp. (NASDAQ: MNKD) stock is reverting to the mean today on heavy volume. Specifically, the drugmaker's shares are down by 17% at 11 a.m. EST.
What's driving this whipsaw trading pattern? Unfortunately, the underlying cause isn't readily apparent due to the lack of any news from the company. But this downward trajectory might reflect short-sellers jumping back in after yesterday's putative squeeze.
MannKind's stock is destined to be extremely volatile going forward for one key reason: The company is nearly out of cash. With an estimated $42 million in cash remaining, MannKind is on track to run out of money by the middle of this year, barring a ginormous secondary offering in the next few weeks.
With the sales of its inhaled insulin product, Afrezza, failing to pick up in a financially meaningful way after a favorable label change last year, MannKind appears to be a dead man walking at this point. To stave off bankruptcy, the company really has no other option but to continually dilute shareholders -- potentially making yet another reverse split necessary in order to meet the Nasdaq's minimum bid requirement later this year.
Put simply, there is no viable route for MannKind to recapitalize without wiping out current shareholders. And that's why long-term investors may want to cut their losses now, before the company starts issuing shares like crazy to put off the inevitable bankruptcy filing.