Update: MannKind Q2 Earnings - Stock Sent To The Woodshed

| About: MannKind Corporation (MNKD)


MannKind reported earnings for Q2 on August 11, 2014.

Despite a massive drop in share price following the earnings event, I remain bullish on MannKind in light of the licensing agreement with Sanofi for Afrezza.

I anticipated a decline following the approval of Afrezza, as well as rising operating expenses and cash burn. The Q2 earnings report corroborates this assessment.

In June, I wrote a bull article on MannKind (NASDAQ:MNKD), with a conservative thesis stating that while regulatory approval for Afrezza was priced into the stock, the company's long-term prospects as an emerging competitor within the insulin delivery space remained intact. I also followed up with an update article on MannKind's latest announcement of a lucrative licensing agreement with Sanofi (NYSE:SNY) for the commercialization of Afrezza. I expected this event would send shares higher in anticipation of commercial launch in the US in Q1 2015; however, we witnessed the opposite effect, as shares closed at $7.48, down 12%, on August 12. This comes as the company conducted its Quarterly Earnings Call for Q2 on August 11. Unfortunately, management refused to disclose important details about its partnership with Sanofi due to competitive reasons, which clearly didn't sit well with shareholders.

As reported by Seeking Alpha, some key highlights of MannKind's Q2 earnings call are as follows:

  • Total operating expenses increased to $69.8 million, up $28.2 million as compared to $41.6 million for Q2 2013.

  • R&D expenses increased to $37.3 million, up $10.2 million as compared to $27.1 million for Q2 2013.

  • G&A expenses increased to $32.5 million, up $ 18 million as compared to $14.5 million in Q2 2013.

  • Loss Per Share increased to $0.19, up 18.8% as compared to $0.16 in Q2 2013.

Oddly, Q2 marks a positive inflection point for MannKind, but a negative inflection point for MannKind shareholders. The company was successful in its licensing efforts for Afrezza, as it now has a $1 billion commercial deal with Sanofi to market the product worldwide. I can only perceive this deal positively, since MannKind now has the much-needed leeway to advance its Technosphere platform. On top of the $1 billion opportunity, MannKind will also retain 35% of profits resulting from sales of Afrezza. On the other hand, shareholders seemed disappointed following the Q2 earnings report, coinciding with the share price haircut. As expenses increased largely due to cash stock compensation ($36.2 million), clinical expenses decreased following the completion of the Affinity studies in 2013. MannKind also experienced a $15.5 million increase in non-cash stock compensation, and spent $2.7 million on commercial readiness for Afrezza. The company maintains a strong cash position at $41.2 million, and is optimally situated with $100 million in convertible debt, as well as Sanofi's $175 million up-front R&D commitment to the joint venture. Therefore, I reiterate my bull thesis, in spite of the sharp drop to pre-approval price levels, as the company is set for the Q1 2015 launch of Afrezza. Stay tuned.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.