What happened

Shares of MannKind Corporation (NASDAQ: MNKD), the maker of inhaled insulin product Afrezza, are down by 15.3% in pre-market trading today on heavy volume.

The drugmaker's shares are responding negatively to a planned direct offering of 14,000,000 shares of common stock and warrants for a combined purchase price of $2.00. MannKind will reportedly receive $28 million in gross proceeds once the offering is complete. 

A man in business attire looking at a tablet with a negative trending graph illustrated above it.

Image Source: Getty Images.

So what

The main reason MannKind's shares are tanking this morning is because the offering comes at a 15% discount relative to the stock's closing price yesterday. In other words, the company probably had to price the offering at a substantial discount simply to entice these "select institutional investors."

Now what

Last month, I warned investors that another sizable capital raise was imminent, and sure enough, MannKind followed through as predicted. The brutal truth is that MannKind's inhaled insulin endeavor has failed, leaving the company no available options but to continue diluting shareholders on a regular basis just to keep its doors open.

Given this never-ending cycle of diluting shareholders, the biotech's shares will almost certainly fall below the $1 minimum bid requirement for the Nasdaq stock exchange before year's end -- thereby forcing MannKind to execute another value-destroying reverse split in the near future. That is, unless the biotech's management finally decides to throw in the towel and declare bankruptcy in the interim. 

While it's tempting to think Afrezza can make a comeback, there's no real-world evidence that such a dramatic turnaround is taking place. To be fair, Afrezza's scripts have been improving modestly in recent months, but not at the rate required to avoid capital raises every few months. As such, I think investors are best served by avoiding this falling knife altogether.