Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares in MannKind Corp (NASDAQ:56400P706) slipped by over 10% earlier today after the company reported highly anticipated first quarter financial results.
So What: Investors were eagerly awaiting MannKind's report, which offers up the first glimpse into whether or not doctors and patients are embracing the company's newly-launched inhaled insulin, Afrezza.
At first blush, investors appear disappointed by news that MannKind recorded just $7.1 million in Afrezza product shipments during the quarter. Since Afrezza sales failed to offset the costs associated with commercializing it, MannKind had to tap a loan facility it has with its collaboration partner Sanofi to cover its $12.4 million portion of the two companies' loss-sharing arrangement.
MannKind also reported that it lost a net $0.08 per share in the first quarter, which was down from a net loss of $0.14 a year ago. Contributing to the smaller loss was a 64.2% drop in R&D expenses and a 31.2% decline in SG&A expenses.
Now What: The desire to reduce reliance on insulin injections has many predicting that Afrezza has blockbuster potential; especially given that MannKind's marketing partner is Sanofi, the maker of the top-selling long-lasting insulin, Lantus.
Unfortunately, MannKind's first quarter results do little to back-up that optimism. Instead, they seem to suggest that investors may have to wait a while before they know just how big (or small) the market will be for this drug.
Fortunately, it doesn't appear that MannKind's financial situation is desperate. The company still has room to borrow under its agreement with Sanofi, and it has some room remaining on its loan agreement with founder Al Mann's The Mann Group, too. MannKind also still has $120.8 million in cash thanks to a $50 million milestone payment it received from Sanofi last quarter.
Regardless, I find this stock simply too risky to own.
MannKind is saddled with costly debt and its licensing agreement means that it will only get 35% of any profit Afrezza generates. Sure, MannKind could earn some handsome milestone payments that could significantly improve its financial situation, but until we see Afrezza gain substantial sales momentum, I'm not willing to bank on them -- at least not yet.