What happened

After MannKind Corp. (NASDAQ:MNKD) announced that it closed on its planned collaboration agreement with United Therapeutics (NASDAQ:UTHR), its shares rallied 16.4% on Tuesday.

So what

MannKind only has one Food and Drug Administration (FDA)-approved drug to its name, Afrezza, an inhalable insulin. Afrezza was launched in 2015 and sales have been far shy of optimistic pre-launch forecasts. As a result, investors have been fearing a cash crunch that could send the company into bankruptcy.

A person arranges cut-up pieces of construction paper into an ascending arrow.

IMAGE SOURCE: GETTY IMAGES.

However, insolvency worries abated this summer when United Therapeutics agreed to license a product in MannKind's pipeline that could one day compete with it. Specifically, United Therapeutics agreed to pay $45 million in upfront cash and potential milestones for rights to an inhaled version of its top-selling treprostinil, which MannKind's developing. As part of the deal, United Therapeutics also gave MannKind an additional $10 million for an undisclosed research project.

The cash infusion is critical to MannKind's financial situation, so investors are cheering news today that the agreement closed without a hitch.

Now what

The inhaled version of treprostinil that's being developed by MannKind uses the same Technosphere technology that's behind MannKind's Afrezza. There's no telling if MannKind's formulation will be successful in late-stage trials, but apparently, United Therapeutics believed the risk was significant enough to lock up rights. I can't say I blame them. Treprostinil is used to treat pulmonary arterial hypertension, or PAH, and that's a multibillion-dollar market.

The extra cash should come in handy for MannKind, but it's not out of the woods yet. It's still burning through cash because operating expenses are outstripping its $3.8 million in quarterly Afrezza revenue, and that's likely to continue. Because Afrezza will remain MannKind's only marketed drug for awhile and spending is likely to continue to be a drain on its balance sheet, I think it's best to stay on the sidelines with this stock.

Todd Campbell has no position in any of the stocks mentioned. His clients may have positions in the companies mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.