The countdown has begun

The countdown has begun

There are times when a company reports earnings actually numbers are meaningless as the company is facing more serious issues. This is the exact situation which faced MannKind (NASDAQ:MNKD) this afternoon when the company released results for 2010.  The one section of the earnings release that is important states;

“Cash, cash equivalents and marketable securities were $70.4 million at December 31, 2010 and $32.5 million at December 31, 2009. In the fourth quarter of 2010, the Company issued and sold 2.1 million shares of common stock to Seaside 88, LP (Seaside) for net proceeds of $14.4 million in accordance with the Company’s common stock purchase agreement with Seaside. Concurrently, with the Seaside closing, the Company issued and sold 2.1 million shares of common stock to The Mann Group, an entity controlled by the Company’s principal stockholder, for a total purchase price of $16.7 million, which was paid by the cancellation of outstanding principal under the Company’s $350.0 million loan agreement with The Mann Group. After taking into account the debt cancellation of $16.7 million during the fourth quarter, as of December 31, 2010, the principal amount outstanding under the loan agreement was $235.3 million, and the Company has $98.0 million of available borrowings under the loan agreement.”

Listening to the conference call the theme was obvious as the company is in full blown survival mode. To preserve capital the company terminated their insulin supply agreement and laid off 179 employees. The company also noted they are looking at every expense as they need to find even more capital preservation methods just to remain a viable operation. To further preserve cash the company has also stopped recruiting patients for some of the ongoing clinical trials.   

As Rome burns around him company founder and Chairman Al Mann remains optimistic stating that while the company is facing serious problems he’s less discouraged now that the company has had time to analyze the recent complete response letter (CRL) issued by the FDA. Perhaps preferring to believe the fantasy rather than deal with reality Mr. Mann continues to state that a partnership is still doable, stating that possible partners are experienced in situations like these. (He did not state if any of these possible partners also believed the Titanic would not sink after being hit by the iceberg.)

The real story isn’t what Mr. Mann did say rather what he didn’t say. In previous calls he noted that he would continue to invest his personal fortune to keep the company afloat, whereas today nothing but silence on the subject. If a picture is worth a thousand words Mr. Mann’s silence on this subject should be heard loud and clear. When directly asked if he would add additional funds to keep the company going Mr. Mann noted while he continues to believe in Afrezza he could not commit to anything at this time.

The bottom line for MannKind is the clock is ticking and zero hour is quickly approaching, baring a last minute miracle the last attempt at inhaled insulin will soon implode. When the last chapter is written on the inhaled insulin saga is written it will likely go down as one of the most expensive failures in diabetes history. Besides costing Al Mann much of his personal wealth, the inhaled wreckage includes the $4 billion the Exubera failure cost Pfizer (NYSE:PFE). Looking back Lilly (NYSE:LLY) and Novo Nordisk (NYSE:NVO) must be thankful they only wasted millions and not billions before they too gave up on inhaled insulin.

As much as Diabetic Investor hates to say we told you so, from the very beginning we have been skeptical that inhaled insulin would ever amount to more than a niche product. We also noted on several occasions that Afrezza’ s approval was problematic at best. Given where things stand today it appears we were overly optimistic.