Image source: MannKind Corp.

Hope that MannKind Corp's (NASDAQ:56400P706) management can secure a suitor has led to shares in the company sky-rocketing over the past couple of days, but investors may want to rein in their enthusiasm given that the cost to acquire MannKind may still be too expensive.

The case for a deal
Despite Afrezza's inability to establish a foothold in the massive diabetes market, the drug remains incredibly intriguing for a couple of reasons. First, inhaler-like dosing removes the need for pesky insulin injections, and secondly, its rapid onset of action, and its quicker exit from the body make it an arguably better option for managing glucose levels than other rapid- and short-acting alternatives.

If we assume Sanofi SA's (NASDAQ:SNY) heart was never really into the marketing of Afrezza, which is possible given that the licensing pact was inked by CEO Viehbacher right before he was forced from power, then another company with an established diabetes sales team still might be able to spark interest in it. That could be particularly true if a new partner were to price Afrezza at parity, or lower, rather than maintain its current premium pricing.

If so, then spending a half a billion dollars to add Afrezza to someone's product mix might be worth it, especially when we consider that the global market for insulin already exceeds $20 billion and is estimated to grow at a compounded 13% annual rate through 2020.

Plus, any acquirer would also get the Technosphere delivery technology Afrezza uses (along with the potential for $102 million in milestones from its recent licensing pact with Receptor Life Sciences), and that could conceivably justify a deal, too.

The case against a deal
Sure, someone, somehow might be able to buy Afrezza and turn it from a dud into a stud, but that's a pretty old song.

After all, major diabetes players like Eli Lilly (NYSE:LLY) and Novo Nordisk (NYSE:NVO) are conceivably the ones most threatened by Afrezza, yet neither of them has stepped up in the past with an offer to acquire MannKind lock, stock, and barrel. 

Certainly, these competitors could buy MannKind for less today than it would have cost them a year ago, but doing so would cost them a pretty penny given that the company's market cap is still a whopping $458 million. $458 million is, undeniably, a lot to pay for a drug that's selling at a tepid $2 million quarterly pace.

And that cost doesn't even reflect the money an acquirer would have to absorb in the form of MannKind's debt. As of Q3, MannKind owes $49 million to founder Al Mann and another $43.6 million to Sanofi as part of MannKind's loss sharing obligation, and overall, MannKind had outstanding debt of $201 million on November 6, according to its third-quarter 10-K filing with the SEC. Obviously, that number has likely changed since the company's offering on the Israeli stock exchange, but we're still talking about a big pile of money that the company and an acquirer would need to pony up.

Fool-worthy bottom line
MannKind's shares should probably come with a "proceed with caution" disclaimer attached to them at this point. If no one buys the company, its lenders could effectively take the company over, an outcome that -- absent a buyer materializing -- seems most likely.

First to collect on a bankruptcy fire sale would be those protected by the facility agreement, which includes MannKind's 2019 notes and tranche B notes. Sanofi's debt, which is racking up interest at 8.5% annually, has first priority to MannKind's facility in Valencia, Calif., and certain insulin inventory, and second priority interest in the company's other interests.

Obviously, a white knight would be a welcome development for the company, but there are many reasons to question whether a deal will ever be struck, and for that reason, this remains a stock best avoided.