The Only Way Troubled MannKind Might be Able to Avoid Bankruptcy

Published: Oct 26, 2016

The Only Way Troubled MannKind Might be Able to Avoid Bankruptcy October 26, 2016
By Alex Keown, Breaking News Staff

VALENCIA, Calif. -- It’s been a tumultuous year or more for MannKind Corporation as the company has struggled financially due to multiple rounds of layoffs and poor sales of Afrezza, a rapid-acting inhaled form of insulin to treat diabetes. With dwindling cash and, perhaps hope, MannKind may need to look to sell its diabetes drug, at least according to one analyst.

Earlier this year Paris-based Sanofi terminated its license and collaboration deal for Afrezza with MannKind because the drug had not met sales expectations. Writing in the Motley Fool this morning, George Budwell said the drug brought in less than $6 million in the first nine months of 2015—prior to Sanofi closing the door on the partnership. Afrezza was approved by the U.S. Food and Drug Administration (FDA) in 2014 and hit the market in the U.S. in a partnership with Sanofi (SNY) in February 2015. Part of Afrezza’s sales problems were related to insurance reimbursement issues. The drug was classified as a Tier 3 medication, which meant patients had to pay a higher co-pay for the drug. The higher tier status also means more restrictions can be placed on the drug. Another issue with the drug is that it cannot be prescribed to patients with asthma and other serious lung ailments. Some analysts suggested the novelty of inhaling the insulin rather than injecting it is not worth the additional price.

With the drug solely in the hand of MannKind, it seems there may be little hope. Budwell speculated the company is not equipped to handle the commercialization of the drug. What’s more, he said MannKind’s cash runway only appeared to extend to the third quarter of 2017, which means the company is facing the real problem of running out of cash—unless sales of Afrezza miraculously pick up. Adding to that, Budwell said MannKind still owes $70 million to Sanofi under its secure loan facility and loss sharing agreement.

The only option would be to sell the drug to another company. But, Budwell notes, there are questions as to what the company could actually get out of a sale. And, with the serious financial straits MannKind has found itself in, would it be better for a potential buyer to wait until the company goes bankrupt and then step in to acquire it even cheaper. As an example, Budwell said Valeant Pharmaceuticals was able to acquire Dendreon 's prostate cancer treatment Provenge, as part of a bankruptcy settlement.

“Specifically, Valeant paid less than two years’ worth of Provenge's average annual sales to acquire the drug in a bankruptcy fire sale,” Budwell said.

Budwell said there are some stock tricks the company could play, such as a reverse split, but he said that would wipe out current shareholders. Shares of MannKind have done little but fall since this time last year. In October 2015, shares of the stock were trading at $3.78, but this morning, the stock is trading at 52 cents per share.

“The key takeaway is that this struggling biotech isn't in a position to create value for shareholders right now. In fact, it may be forced to execute a series of value-destroying maneuvers in the near future in order to keep its doors open—or alternatively, simply accept defeat on Afrezza's commercialization and declare bankruptcy,” Budwell said.

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