MannKind Corporation (NASDAQ:MNKD) reported its second-quarter earnings yesterday, and the numbers didn't paint a pretty picture, to put it lightly. In fact, the struggling inhaled insulin company is facing a serious cash crisis that it might not be able to solve without drastic measures. Unfortunately for shareholders, one of those measures could be declaring bankruptcy.
Given the growing possibility that MannKind will finally be forced to admit the obvious -- that its inhaled insulin product Afrezza is a commercial flop -- and subsequently file for bankruptcy, I think shareholders need to understand the company's limited options right now. Retail investors, after all, stand to be completely wiped out if the company can't find a way to solve this financial riddle. Read on to find out more.
MannKind is on the brink of collapse
Despite management's rather optimistic take on the company's move toward "cash flow break even" later this year, the reality is that MannKind has less than a quarter's worth of cash remaining. The biotech is also set to fall below the $20 million required by its facility agreement with Deerfield Private Design Fund.
Turning to the specifics, MannKind exited the second quarter with cash and cash equivalents of $26.7 million. However, the biotech posted a net loss of $22.7 million for the same three-month period. So, unless MannKind has drastically curtailed its expenses in the past month, the company has already fallen below the cash requirements of its loan agreement with Deerfield and is on track to be financially insolvent by the end of the third quarter.
Because of this looming cash crisis, MannKind will have no choice but to announce one of three possible strategic moves within a matter of days:
- A licensing deal that includes a major upfront cash payment.
- Another reverse stock-split followed by yet another secondary offering on the order of at least $50 million.
- A bankruptcy filing that would likely result in the liquidation of the company.
These are the biotech's only viable options at this point because Afrezza's sales are essentially meaningless from a financial standpoint. For the first six months of 2018, after all, this drug generated a mere $7.2 million in total net revenue for the company. MannKind also doesn't have the financial resources necessary to ramp up Afrezza's marketing campaign to change this bleak situation.
While my assessment may sound like over-the-top doom and gloom, I think it's hard to come away with any other impression at this stage. My guess is that MannKind will choose to roll out another reverse stock-split in order to issue even more shares as part of a large capital raise soon -- a move that would probably wipe out current shareholders for the most part. But that value-destroying strategy can't go on forever.
The bottom line is that Afrezza has been on the market for four years now. This isn't a new commercial launch that's going through some early bumps; rather, it is a niche product that will never come anywhere near making MannKind into a cash-flow-positive operation. Hanging on to the notion that MannKind is about to put all of the pieces together and get Afrezza's commercial launch on track will likely only result in further capital destruction.
With this in mind, I think now is the time to cut your losses if you've been holding onto this falling knife. The chances of a partner swooping in to save the day are zero to none at this point. Any interested partners know they can acquire Afrezza for pennies on the dollar once MannKind eventually files for bankruptcy -- whether it be next month or when the biotech's creditors finally force the issue.