Delaying the inevitable

Delaying the inevitable

Ever since Sanofi (NYSE:SNY) released their third quarter results and outlined their long term strategy shares of MannKind (NASDAQ:MNKD) have been in a free fall. It also didn’t help much when MannKind held their earnings call, a call which didn’t offer much hope. Back on October 28th, the day before Sanofi announced their earnings shares of MannKind closed at $3.78, yesterday shares closed at $2.22 on huge volume. It should also be noted that intraday shares fell to a low of $1.76 before recovering somewhat.

After the markets closed yesterday the company issued a press release which stated;

MannKind Corporation (Nasdaq:MNKD) (TASE:MNKD) today announced that its shares will enter the following Tel Aviv Stock Exchange, or TASE, indexes as planned on November 15, 2015: TA-100, TA-75, TA-Composite, TA-Biomed, TA-Blue-Tech and TA-Tech-Elite.

The Company is reconfirming its expectation of completing a previously-announced registered direct offering of its common stock to selected investment funds in Israel that are required to hold securities included within certain stock indexes of the TASE. The final number of shares to be sold in the offering will be determined based upon the number of shares the purchasers are required to hold within the indexes, and subject to the purchasers’ desired allocation amounts.”

Not surprisingly shares are surging today as investors likely feel somewhat relieved that the company at least for the time being can survive. Yet anyone who has followed this company knows that MannKind shares aren’t likely to hold onto these gains over the long term. The fact is the die has been cast for MannKind and this short term reprieve is merely delaying the inevitable.

Given what Sanofi said and didn’t say it’s now more than 50/50 chance that come January the company will begin the process of terminating their partnership with MannKind. Sales of Afrezza aren’t improving and without this partnership MannKind’s long term survival is questionable. MannKind supporters are holding onto the belief that the company will find a new partner for Afrezza. Some believe the company’s pipeline is valuable, while others believe the company is ripe to be acquired.

Considering this is the wacky world of diabetes where anything can and usually does happen, even when it makes no sense whatsoever, anything is possible. Yet one has to wonder why another company would come along and partner with or acquire MannKind. Even at its lower market cap an acquisition would not be cheap. But this would just be the beginning as whoever acquires MannKind would inherit a host of issues which even money may not solve.

The harsh reality is even if by some miracle this new owner could get payors to improve Afrezza’s dismal formulary placement, this does nothing to address the fact that Afrezza is just too expensive to manufacture. Nor does it change the fact that Afrezza is not a superior short-acting insulin, the need for additional tests or the fact there are cheaper established options. Although MannKind supporters just can’t wrap their heads around this fact even physicians who prescribe Afrezza acknowledge there is limited market for the drug.

While we don’t want to be overly harsh all any company interested in MannKind has to do is wait. Wait for Sanofi to terminate the partnership, watch shares fall completely into the abyss and then step in buy the company for pennies on the dollar. Yet even under this scenario, which is about the only way a deal comes remotely close to making sense, the problems with Afrezza won’t go away. Like it or not, Afrezza will NEVER come close to reaching blockbuster status. As we have noted from day one Afrezza is nothing more than a niche product which will have millions NOT billions in sales.

Smart investors would be wise to use today’s surge as an opportunity to cash out, as this roller coaster ride is coming to an end.  The reality is all the kings’ horses and all the kings’ men cannot put MannKind back together again.