In a Securities and Exchange Commission filing yesterday, we found out how much it's going to cost MannKind to end the contract: $16 million. The payment will be made in two installments after MannKind accepts delivery of an undisclosed amount of insulin. Not that the company appears to really need any extra insulin. It also has a supply agreement with Pfizer
The punishment could have been worse. When MannKind announced that it was canceling the deal, it said the penalty could potentially be $22.7 million if Merck wasn't able to offload the insulin to someone else.
Still, $16 million is a lot of money for a company that had less than $50 million in the bank at the end of the first quarter. To satisfy the FDA, the company still needs to run two clinical trials that will cost $25 million apiece.
MannKind does have some options for funding other than diluting shareholders through secondary offerings. There's always the potential for a partner for Afrezza, but I don't know who would touch it at this point. Pfizer, Eli Lilly
A better solution would probably be for MannKind to sell off its oncology assets, but I don't know how much it'll be able to get up front for drugs that have been stalled as the company focused on its lead product.
An FDA approval is still possible -- I'd go so far as to say probable -- but investors will need to be very patient and tolerate some dilution if MannKind can't work some additional magic raising cash.
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Fool contributor Brian Orelli holds no position in any company mentioned. Click here to see his holdings and a short bio. Motley Fool newsletter services have recommended buying shares of Pfizer. Try any of our Foolish newsletter services free for 30 days. 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.