MannKind Reports

MannKind Reports

Typically, when a company reports full year and fourth quarter results the focus is retrospective, well given the set of circumstances facing MannKind (NASDAQ: MNKD) who reported this afternoon typical rules don’t apply. With MannKind it’s all about the future or put more simply can they succeed on their own with no current partner for Afrezza. Perhaps the most relevant set of numbers come from the company’s press release;

“Cash and cash equivalents at December 31, 2015 were $59.1 million, compared to $32.9 million in the third quarter of 2015. During the fourth quarter of 2015, we received $34.7 million in net proceeds from sale of stock on the Tel Aviv Stock Exchange, $0.7 million in proceeds from warrants and options exercised, $2.6 million in payments from Sanofi for product shipments, and $13.6 million in net proceeds from the sale of stock pursuant to our at-the-market sales facility. Currently, $30.1 million remains available to borrow under our amended loan arrangement with The Mann Group.”

As management noted during the call, which by the way lasted a whopping 28 minutes, with no changes, no borrowing from the Mann Group or no additional infusions of cash they have enough cash on hand to make into the second half of the year. Given that Sanofi (NYSE: SNY) isn’t scheduled to hand over Afrezza until April 5th, this doesn’t give the company much time to do anything substantial in the second quarter which basically means they will need to find additional cash somewhere.

The question on everyone’s mind is; can MannKind on its own do any better than they did when Sanofi was their partner. A partner which management threw firmly under the bus today. Although CEO Matt Pfeffer stopped himself before completely unloading on their ex-partner the message sent was very clear, this was never a good partnership and while parting ways was not what they wanted Sanofi won’t be missed. We’d like to say we knew this was going to happen, that we predicted this would happen – which we did – let’s just add that when it comes to selecting a partner in diabetes Sanofi should be avoided like the plague. Given the choice between partnering with Sanofi or root canal work – do we really need to say it.

Still the question is what can MannKind do that Sanofi should have done, will this help any or is it already too late. As management noted lowering the price of Afrezza and improving its poor formulary position would be a start but also a double edge sword. As we have noted in the past there is very little margin in Afrezza already and a lower price and/or higher rebates will only eat away any margin at all. Keep in mind now that Sanofi is gone, any marketing for Afrezza also comes out the company’s dwindling cash. And do we need to mention the company must also build a sales team and even if this done on a contract basis this too will cost money and/or eat into margins.

The lone hope isn’t much of a hope as raising additional capital will be next to impossible or come with loan shark like terms. As management noted they really don’t want to dilute the stock even more and for the first time in memory there was no mention of any possible partnerships right around the corner that will save the day. Nor was there any mention of how the pipeline will save the day.

The reality is the company is basically waiting for Sanofi to give them back Afrezza so they can put whatever strategy they come up with in play.

Given that March Madness is about to begin the best way to look at this situation is to think of MannKind as a 16 or 15 seed who has to play against a number 1 or 2 seed. Never ever has a 16 beat a one and only 7 15 seeds have ever beat a 2 seed. This is not say that MannKind can’t pull off an upset rather it shows just how steep a hill they must climb.