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MannKind Corporation

This past week, MannKind (MNKD) held a conference call to discuss its 4Q 2010 earnings. In addition, the 'path forward' was also discussed in more detail than it was in the CRL conference call a few weeks ago. I wanted to address the more salient points of the conference call, as there is a lot of information that will no doubt affect the underlying value of the company.

A transcript of the conference call can be found here (via Seeking Alpha).

The company is circling the wagons around Afrezza.

The company is focusing the bulk of its resources on getting Afrezza to market. As such, 179 people were let go from MannKind, representing a 41% reduction in payroll. And although MannKind didn't explicitly state that the oncology program was cut, they did mention that only 'critical personnel' would be retained. Additionally, the company will be conducting an internal audit of research programs in the near future and decide which programs will be taken forward, and which will be halted or sold.

As a result of the cost cutting, MannKind's management stated it has cash to sustain operations through the end of this year. This assumes they can continue to draw on their loan agreement, but does not take into account any additional funds from Mann or from Seaside. Al Mann stated that he isn't committing any additional cash at this point, but I wouldn't be surprised if he contributes more in the future.

Afrezza is at least 15 months from resubmission, and almost two years away from another PDUFA

MannKind's management has stated that it will not be augmenting the Affinity 1 & 2 trials - currently in progress - with the Medtone inhaler device until after it meets with the FDA. That meeting is not yet scheduled, and the request for the meeting was likely submitted the day after the conference call. Once the meeting takes place, MannKind must finalize plans for the addition of Medtone to the trials, enroll patients, titrate patients onto the new device until stable, and then collect data for twelve weeks. All told, the trials will likely take six months from when the trials are started - the date of which isn't clear at this point.

After the trials are completed, the data must be analyzed, summarized, and resubmitted to the FDA; a process MannKind states will take two to three months. Adding up all of the time required for the various activities, it would appear that MannKind is at least twelve months, and probably much closer to 15 months, away from resubmission. Cory Kasimov, the biotech analyst at J.P. Morgan Chase, asked pointedly, "...you would be looking at about 15 months from the time you restart the trials until you are in a position to resubmit, so are you looking at kind of mid-2012ish or something, is that the right way to look at it?" Peter Richardson, of MannKind, made no attempts to rebuff the timeline - simply restating his previous estimates of the various stages.

Because there will be new trials to review, the NDA will be a class two resubmission. This will result in a PDUFA date being established six months from resubmission. The likely potential approval date, then, would be as long as 24 months from today, or February 2013, give or take a few months in either direction.

Partnership appears to be the ideal solution, though terms of the partnership will likely be challenging

It's obvious that partnership would be the most ideal financing pathway for the flailing company. While MannKind mentioned they were in contact with several potential partners, no negotiations have yet taken place. Rather, MannKind stated it wanted more clarity in the road forward - namely it must have the meeting with the FDA - before it would be prudent to negotiate. It would appear, then, that there will be no white knight storming onto the scene to save MannKind in the near future.

In addition, many of the analysts appeared skeptical of the partnering ability of the firm.

Cory Kasimov, of JPMorgan, inquired "I am just trying to understand, if you wouldn’t partner AFREZZA before the prior to PDUFA dates, but are you considering taking less money now to keep the product moving forward, or is this something that, that contingency plan if you don’t have other financing opportunities?"

And from Tom Russo, Baird; "There is still a lot of continued talk about potential partners which is frankly rather unusual to hear to such an extent and so frequently from a public company... But are you – I guess I am also just trying to understand, how you could negotiate with potentially interested parties while kind of in this financial predicament, is it – would one come before the other in terms of shoring up the balance sheet before really being able to even consider negotiating or we start another way around it."

In my mind, MannKind will likely partner to gain the cash it needs to make it through potentially another year of operations until approval of Afrezza. However, the terms of the partnership will be brutal.

Summary

The main points as I see them are 1) the next likely PDUFA date for Afrezza will be late 2012 to early 2013, 2) MannKind does not have the money to make it to that point, and 3) MannKind will seek a partner to help cover the costs associated with getting Afrezza to market - and the terms won't be great.

I'll be honest here, this is bad news. MannKind is already highly leveraged, having sizable debt positions. MannKind will likely need $100 million or more to get Afrezza to approval, and then it would be left with no money for commercialization. A partnership, if it materializes, will leave MannKind with a pittance of a royalty if it requires the outlay of $200 million before ever seeing profit. And while I've mentioned that I think Afrezza has a better shot at market acceptance than Exubera, there's no proof this product won't flop as well. I will say, however, that I think it's likely that the trials will succeed - but what if they don't?

The conference call sets the stage for the drama to unfold over the next 2+ years. MannKind is a company teetering on the brink of disaster. It doesn't have the money to proceed to approval and likely has a weak bargaining position. And MannKind's hardships likely won't magically end upon Afrezza's approval. Its leader, however, is obsessed with getting Afrezza into the hands of diabetics. I think he succeeds - eventually - but potentially at great cost to himself and the company's shareholders.

Source: MannKind Is Teetering on the Brink of Disaster