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Is MannKind Corporation's Stock Really Only Worth 5 Cents?

By Brian Feroldi – Jan 6, 2016 at 2:56PM

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At least one analyst seems to think so.

Image Source: MannKind

Yesterday was a brutal day to be a MannKind Corporation (MNKD 0.45%) shareholder. The stock shed nearly half of its value after news broke that the company's marketing partner Sanofi (SNY 0.72%) had terminated its licensing agreement and was returning all rights to market and sell Afrezza back to MannKind.

The news has analysts scrambling to update their models to incorporate the new information, and they remain divided on where shares will eventually go. On the one hand is Griffin Securities still firmly in bull mode on the stock -- the firm sees shares moving sharply higher from a current value of roughly $0.65 to $4. On the other hand is Piper Jaffray analyst Joshua Schimmer who is having a hard time seeing how the company will avoid bankruptcy and has set a price target of only 5 pennies. 

Emotions are running high on this stock right now as investors debate the future of the company. Here's what you need to know:

Why Sanofi pulled the plug
Since its launch in February 2015 Afrezza has faced a number of hurdles attempting to gain traction in the market. Despite throwing tens of millions of dollars behind the product each quarter, Sanofi was only able to sell about $5.5 million worth of the drug through its first three quarters on the market. That sales figure came up well short of what Sanofi was projecting, so the company decided yesterday to cut its losses.

That decision puts MannKind in a precarious position as it was heavily dependent on Sanofi's deep pockets and huge commercial footprint to help it launch Afrezza. With them now out of the picture MannKind's only options are to find another partner or attempt to commercialize the drug itself.

Down, but not out (yet)
To help give investors a bit more clarity about the situation, MannKind held a special conference call yesterday. The company's Chief Financial Officer Matthew Pfeffer provided investors with an update of its current financial position, starting with its expected liquidity at the end of 2015:

We anticipate finishing the year with between $59 million and $60 million in cash. We also still have available $30 million under our existing volume arrangement with The Mann Group.

Pfeffer also confirmed that the company is not required to repay any of its upfront or milestone payments back to Sanofi. He also stated that the company's portion of the loss-sharing arrangement it has with Sanofi related to launching Afrezza does not mature until August 2024.

At current cash burn rates the company believes that it already has enough capital on hand to fund itself "well into the second half for 2016". It is also actively looking for new ways to cut costs in an attempt to extend that runway out a bit further, which does give it a little bit of time to come up with a new game plan.

Pfeffer also did his best to give investors a sense of hope, reminding them that the company is currently working on additional drugs that could utilize its "Technosphere" technology:

We are working on several potential out-licensing transactions or additional product opportunities at this time, and we'll announce more details as these transactions reach fruition.

MannKind plans on sharing more details with investors next week at the JPMorgan healthcare conference in San Francisco.

The market remains skeptical
While the company does have a little bit of time to figure out its next move, the market doesn't appear to like its chances. Shares of MannKind are selling off again today, indicating that investors do not believe that the company will be successful at either signing up a new partner or selling Afrezza on its own.

Only time will tell which analyst will be proven right.

Brian Feroldi has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Stocks Mentioned

MannKind Corporation Stock Quote
MannKind Corporation
$4.43 (0.45%) $0.02
Sanofi Stock Quote
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