After a pair of financing deals in the past week, MannKind (Nasdaq: MNKD) seems to have traded in its two-legged stool for a leather recliner at the negotiating table with potential partners.
Or maybe the company is hunkering down because it's not sure it'll find a partner for its inhaled insulin Afrezza anytime soon.
It's really hard to tell.
Last week, MannKind arranged an IV drip of cash when it agreed to sell Seaside 88 LP 700,000 shares every two weeks at an 8% discount to the weighted average trading price over the preceding 10 days. Dilution is a fact of life for development-stage drugmakers, but it sure would be nice to get cash closer to market value, preferably back when it was trading at above $10 share.
As part of the deal, the group controlled by founder and CEO Al Mann will match the Seaside purchase -- without the discount -- which will cancel out some of its $252 million loan to MannKind.
Some might say that trading debt for equity is a vote of confidence by Mann, but I have a hard time seeing it that way. If MannKind can't get Afrezza approved, the company will be hard-pressed to pay back the loan anyway. Whether you're first or last in line doesn't matter much when a company has a negative book value. Essentially Mann is trading investments with almost the same downside, but the shares he's getting have a huge potential upside.
Yesterday, MannKind announced that it plans to sell $100 million in secured debt to bolster its pocketbook a little further. While not as complicated as the first, the deal does include a wrinkle of its own: MannKind will loan Bank of America 8 million shares so the bank can provide shares and derivatives for those purchasing the debt to hedge their investments by shorting the stock. At the end of July, Mannkind already had a short interest of 16.8 million shares, which was 26% of the float.
The market did not like this move at all, pushing the stock down about 10%.
As I see it, these moves are neither a bullish nor bearish sign. There's just no way to know if MannKind is on the verge of signing a partner or planning on waiting until Afrezza is approved to ink a deal. I'm not sure it matters a whole lot either way; with Pfizer (NYSE: PFE), Eli Lilly (NYSE: LLY), and Novo Nordisk (NYSE: NVO) having all dropped their inhaled insulin products, any deal is likely to have very little preapproval money in it anyway.
The only way MannKind is going to turn that leather recliner into a lounge chair and then into a chaise lounge in the South Pacific is by proving skeptics wrong.
