MannKind Corporation (MNKD) has had a tough year, and a particularly rough summer. Shares of the small-cap biopharmaceutical company are down more than 35% year-to-date — but off more than 50% since its July highs above $7 a share.
It’s proving to be a far more difficult year than investors expected, especially after all the positive developments we’ve seen since mid-2014.
As MNKD stock owners know, mid-2014 was when the Food and Drug Administration officially cleared Afrezza, the company’s inhalable insulin product and only approved drug, for the treatment of both Type I and Type II diabetes.
But as a small company with limited resources and loads of debt, MannKind had to find a partner to market and distribute Afrezza. It did just that, partnering with French pharma giant Sanofi (SNY), who paid MNKD a $150 million lump-sum fee for global rights to the potentially groundbreaking product.
The deal also entitled MannKind to as much as $775 million in additional milestone payments depending on how the drug sold, and a 35% share in the profits or losses from the joint venture.
The problem is, Afrezza has not been selling well, and with third-quarter earnings on the horizon, investors should know what to look for:
Q3 Won’t Be Special
No one with a head on their shoulders is expecting Q3 to be a game changer for MNKD. Analysts expect the company to lose 7 cents per share on revenue of $180,000.
If that doesn’t sound like a lot of money, it’s because it isn’t. And that’s perfectly okay.
Third-quarter earnings will be more about MannKind’s liquidity, as well as whether Afrezza sales are picking up, than traditional earnings and revenue numbers.
Unfortunately for MNKD, Afrezza sales are still underwhelming. Sanofi, a French company, reported just €2 million in Afrezza sales in the second quarter, and Sanofi’s freshly released third-quarter report shows no improvement — another quarter, another measly €2 million in Afrezza sales.
That €2 million in Afrezza sales equates to about $2.2 million. Considering MNKD is entitled to just 35% of the profits and losses from Afrezza sales, MannKind really isn’t making any traction.
An equally large concern is MannKind’s debt and dangerously low cash levels. We’ll have to wait to see, but MNKD likely paid back some large creditors last quarter to the tune of $64 million. The company had $107 million cash on hand at the end of the second quarter, $25 million of which was restricted, leaving the company with just $18 million in the coffers that it can actually use, barring other cash infusions.
Perhaps the scariest aspect of the MannKind story is that Sanofi has the option to terminate its agreement to market Afrezza as soon as early 2016. With rather unimpressive sales to date, that’s a very real possibility.
All in all, Afrezza is a great, potentially groundbreaking concept. But if MannKind can’t find a partner to make it popular with the public, all will be for naught.
As of this writing, John Divine was long Jan 2016 MNKD $7 call options. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
