The Numbers Don’t Add Up

The Numbers Don’t Add Up

This morning MannKind (NASDAQ:MNKD) released third quarter results and well the numbers just don’t add up. According to a company issued press release:

“For the three and nine months ended September 30, 2015, product shipments of Afrezza, our novel rapid-acting inhaled insulin therapy, were $4.1 million and $17.1 million, respectively, which we recorded as deferred product sales from our collaboration with Sanofi. For the quarter ended September 30, 2015, our portion of the loss sharing arrangement with Sanofi related to Afrezza was $14.7 million, which we subsequently financed by way of an advance under the loan facility with an affiliate of Sanofi after September 30, 2015. The amount currently outstanding under the Sanofi loan facility is now $43.7 million, which includes $0.8 million in paid-in-kind interest.”

Now before we go any further keep in mind that when Sanofi (NYSE:SNY) reported their third quarter results Afrezza sales came in at slightly more than $2 million for the quarter. Yet as we can see from the MannKind release the company was paid $4.1 million for quarter. Even more astonishing year to date sale of Afrezza according to Sanofi are just over $5 million although they paid MannKind $17.1 million. Listen we’ve also known that Afrezza was expensive to make and given the drugs poor formulary position that it would difficult if not impossible for Sanofi to turn a profit yet these numbers reflect just how crazy the math truly is.

Yet it’s not just the revenue numbers which are wacky, MannKind share of the loss has now grown to $43.7, which they are thankfully financing through a loan from Sanofi. Good thing too as the according to the press release the company is down to $32.9 million in cash. The release states; “Currently, $30.1 million remains available to borrow under our amended loan arrangement with The Mann Group and $37.5 million of common stock remains available for sale under our at-the-market sales facility.”  Which basically means that should the company blow through the cash they have left they can borrow even more money. Boy that must a relief to MannKind stakeholders.

Yes the company has cut costs but even with reduced costs they cannot survive when they lose money on the product they sell. The company is pilling on debt and sales of Afrezza continue to lag well behind even lowered expectations. It also doesn’t help when their partner does not include Afrezza in the group of products they intend to focus on. By every indication it appears that come January Sanofi will terminate the partnership.

Now we have no idea what the company plans on saying this afternoon when they conduct their call but we’re pretty sure they will follow what has become standard operating procedure, ignore all the obvious bad news and concentrate on the good news. This should be very interesting given that there really isn’t any good news. Sales of Afrezza aren’t accelerating this even though according to social media patients love the drug. Sales continue to lag even with the super duper direct to consumer ad campaign. Sales continue to disappoint even though more physicians are becoming aware of the drug.

Seriously Diabetic Investor can’t wait until 5pm EST to hear how MannKind will spin these recent events. The reality here is that the numbers have never added up for MannKind and Afrezza. That this drug is just too expensive to make and without better reimbursement it has no chance at being profitable. As we have said from day one there is a place for Afrezza in the treatment paradigm just not a large place. We have always maintained that Afrezza was nothing more than a niche product and with just a little over $5 million in sales this year that outlook now seems overly optimistic.

The reality here is the numbers have never added up and the countdown to Armageddon has begun.