Shares of MannKind Corporation (NASDAQ:MNKD) were down 13.9% as of 3:31 p.m. EDT on Monday. The drop followed a 23% plunge on Friday after the biotech announced its second-quarter results on Thursday evening.
Those results were pretty dismal. Net revenue for MannKind's only approved product, Afrezza, was $3.8 million. While that was up 142% year over year, it still wasn't nearly enough to meet the $4.8 million revenue estimate from the one analyst who covers the stock. On a positive note, though, MannKind's Q2 net loss of $22.7 million, or $0.16 per share, was a little better than the expected $0.20 loss.
At the end of the first quarter, MannKind estimated that its full-year 2018 net sales for Afrezza would be between $25 million and $30 million. The biotech now thinks that sales for the year will be between $22 million and $25 million. That's not the revision investors wanted, to say the least.
Probably the chief worry from MannKind's Q2 results for some investors is whether or not the company can avoid going into bankruptcy. The company reported cash, cash equivalents, and restricted investments of $26.7 million at the end of the second quarter. That's not enough to fund operations through the rest of this year.
How will MannKind raise additional money? CEO Michael Castagna stated on the company's Q2 conference call that the company has "many options to recapitalize." He showed a slide listing alternatives including securing partnerships for pipeline assets, international licensing, co-promotion opportunities, increasing debt, and issuing additional equity.
Castagna said that he doesn't expect "equity/continued dilution will be the predominant way we grow our cash flow breakeven." So which of the other alternatives is the most promising path to raise more money? Partnerships, licensing, or co-promotion deals would be the best option. The challenge could be making a deal happen quickly enough.
In July, MannKind announced a deal with Tanner Pharma to distribute Afrezza outside the U.S. Unfortunately, Castagna said that there was no up-front cash associated with this agreement because MannKind retained global rights to Afrezza. The company is still looking for partnerships, but there were no hints at all that anything was in the works.
MannKind has reduced its debt by $52 million since July 2017. Castagna specifically mentioned "potential new debt opportunities" in his remarks on the Q2 conference call, so it seems that's a likely strategy for the company to bring in more cash to fund operations.
Investors can't count on a miraculous surge in Afrezza sales to rescue MannKind. They probably can't depend on a white knight riding in with a partnership deal, either. That means that MannKind will likely either have to borrow more or conduct yet another dilution-causing stock offering.
Both alternatives come with considerable baggage. The problem with increasing debt is that it increases interest expenses at a time when MannKind is already losing a lot of money. The problem with a stock offering is that MannKind might have to do another reverse split of its stock to avoid getting into trouble with its stock exchange listing.
I personally don't think MannKind is headed for bankruptcy at this point. The company does have other viable alternatives. However, it needs Afrezza's sales to pick up -- and in a hurry -- to avoid being in this exact same position a few months from now.