MannKind finds a savior

MannKind finds a savior

Yesterday MannKind (NASDAQ:MNKD) announced they had secured a much needed capital infusion from Deerfield Management. According to a press release issued by the company:

“Under the terms of the financing, Deerfield committed to provide up to four tranches of $40 million each on the following schedule: at closing; following the release of certain results in MannKind’s two current Phase 3 clinical studies of Afrezza®; concurrently with repayment of MannKind’s 3.75% Senior Convertible Notes due 2013; and following FDA approval of Afrezza. The notes will accrue interest at a rate of 9.75% per annum until maturity in 2019. A portion of the principal amount of the loan facility may be convertible into shares of MannKind’s common stock at the Deerfield’s option after a specified period following the release of data from the aforementioned clinical trials. The conversion price will be determined by the volume weighted average price of the common stock during the 20 trading days immediately preceding the conversion date. If the conversion price exceeds $6.67, no more than 6 million shares may be issued upon conversion; if the conversion price is less than $3.33, no more than 12 million shares may be issued upon conversion; and if the conversion price is between these dollar amounts, no more than $40 million worth of common stock may be issued upon conversion. As part of the transaction, Deerfield received from MannKind milestone rights that provide for the payment of up to $90 million upon the occurrence of certain strategic and sales milestones.”

At first glance Diabetic Investor thought the good folks at Deerfield had taken leave of their good judgment.  But as they say in the NFL upon further review this may not be such a bad move. Keep in mind that Deerfield made a small fortune when they bailed out Insulet (NASDAQ:PODD) back when the company was in a similar situation. In a deal that would make a Chicago mob boss green with envy, Deerfield knew that without their help Insulet would be in deep trouble. Now we wouldn’t come out and say that Deerfield terms were akin to extortion, let’s just say they got a very good deal.

It’s possible that at least for Deerfield history could be repeating itself. Like Insulet, MannKind is now in desperation mode as it appears company founder Al Mann, who’s once large fortune has bankrolled MannKind up to this point, has decided he can no longer afford to keep the company afloat.  Mr. Mann is also acutely aware that Afrezza still has a long way to go and even if approved faces a difficult road in the marketplace. Yes there are some who see a place for Afrezza in the treatment paradigm but even these supporters acknowledge that Afrezza at best is a niche product with limited commercial potential.

Diabetic Investor should also point out that these crazy rumors about Novo Nordisk (NYSE:NVO) acquiring MannKind are just that- crazy.

Still Diabetic Investor thinks Deerfield has a limited amount of risk here and could possibly reap a substantial profit should Afrezza makes its way onto the market and then some company is dumb enough to come along and buy MannKind.  Stranger things have happened before and this being the wacky world of diabetes could well happen again.