What happened

After the company provided the pricing details of a recently announced capital raise, shares of MannKind Corporation (NASDAQ:MNKD) fell 32% as of 10:15 a.m. EST on Thursday.

So what

Here are details from the announcement:

  • MannKind, a commercial-stage biopharma focused on inhaled insulin, is selling 26.667 million shares of common stock and warrants.
  • Each share is being sold with a warrant, for a combined purchase price of $1.50.
  • Each warrant will have an exercise price of $1.60 per share and can be is exercised immediately. The warrants expire one year after their date of issuance.
  • The gross size of the deal is $40 million before deducting the underwriting discounts and commissions. This number could grow if the warrants are exercised. 

For context, the stock ended Wednesday's trading at $1.69. The fact that the company had to offer a discount on the share price and attach a free warrant to the deal suggests that there wasn't a lot of demand from investors. 

Arrow pointing up and down with question mark

Image source: Getty Images.

Traders are mauling the stock in response.

Now what

MannKind's diluted share count as of the end of September was 153.6 million. So this deal will dilute current shareholders by 17% immediately -- and potentially more if its warrants are exercised.

The company's net loss through the first nine months of 2018 was $77.2 million, so the $40 million cash injection will likely fund only about two quarters of additional cash burn. 

As always, MannKind is under a tremendous amount of pressure to ramp up sales of Afrezza as quickly as possible. Last quarter, Afrezza sales jumped 121% to $4.4 million. That certainly represents progress, but it is still such a small number in absolute terms that the company wasn't even able to report a positive gross margin.

Overall, MannKind is still in a tough financial position even after including the proceeds from today's capital raise. For that reason, I think that looking elsewhere for opportunities in the healthcare industry makes the most sense.

Brian Feroldi has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.