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MannKind Corporation (NASDAQ:MNKD) is a biopharmaceutical company that focuses on the discovery, development and commercialization of therapeutic products for diabetes and cancer in the United States, Europe and Asia. Its lead product candidate, AFREZZA Inhalation Powder, an ultra rapid-acting insulin that is in Phase III clinical trials for the treatment of diabetes for the control of hyperglycemia. The company also develops MKC1106-MT, an investigational cancer immunotherapy product, which is in Phase II clinical trials for the treatment of adults with type 1 or type 2 diabetes, and MKC204, which is in preclinical development stage for the treatment of malignancies and inflammatory diseases.

In addition, its products include MKC253 (GLP-1), a Phase I clinical trials product for the treatment of type 2 diabetes; MKC1106-PP, a Phase I clinical trials product for diverse tumor types, metastatic disease, and/or progressive and refractory disease; and MKC180, an obesity compound and MKC1106-NS, a cancer immunotherapy product that are in preclinical trials. MannKind Corporation was founded in 1991 and is headquartered in Valencia, California.

A Curious Case

At first glance, MannKind seems to have a deep and interesting pipeline of drug candidates in phase clinical studies. Let's take a look at them.

AFREZZA is a novel, ultra rapid-acting mealtime insulin therapy in late stage clinical investigation for the treatment of adult patients with Type 1 and Type 2 diabetes mellitus for the control of hyperglycemia. It is a drug-device combination product, consisting of AFREZZA inhalation powder pre-metered into single use dose cartridges and the light, discreet and easy-to-use AFREZZA inhaler. Because of its unique pharmacokinetic profile, AFREZZA may be a promising new therapy for patients with Type 1 and Type 2 diabetes, as it controls post meal-time glucose levels with less weight gain and lower risk of hypoglycemia.

Sounds promising right? Well, not so fast.

Following two FDA rejections of Afrezza, one in 2010, the other in 2011, the company will be further studying to improve Afrezza clinical data into the second half of 2012 in hopes to provide the FDA the proper clinical study data it needs to possibly approve the drug. This means MannKind won't reapply for U.S. approval until sometime in 2013.

MKC253 is a Technosphere formulation of GLP-1 (glucagon-like peptide). In initial clinical studies, MKC253 showed a lack of the characteristic adverse events, like nausea and vomiting, that are frequently associated with long-acting GLP-1 analogs. Results from a phase 1 trial supported the hypothesis that inhalation of MKC253 may be able to simulate the incretin effect that is lost in patients with Type 2 diabetes. In other words, it is another potential diabetes treatment.

MKC253 seems to be stuck between phase 1 and phase 2 clinical for a few years now. This case becomes more curious to me the more I dig into it.

MKC1106 is MannKind's active immunotherapy platform, and there are three separate programs. MKC1106-PP, designed to target solid tumors, completed an open label phase 1 clinical trial and objective responses were observed in prostate cancer and renal cell carcinoma. MKC1106-MT is now being evaluated in a phase 2 clinical trial for patients with advanced melanoma. MKC1106-NS may be applicable to a range of solid and blood cancers.

At least Mannkind has this drug in phase 2 clinical.

MKC204 is an IRE-1 alpha inhibitor with potential application in the treatment of multiple myeloma. IRE-1 alpha is a protein important in the regulation of the Unfolded Protein Response (UPR) cascade. Additional potential indications for UPR pathway inhibitors include autoimmune diseases, cardiovascular diseases and neurodegenerative disorders.

All of the above drugs sound promising, but the data is lacking, Furthermore, Mannkind is not in good financial shape.

The case of Mannkind grows even more curious:

Fiscal Year
Fiscal Year Ends: Dec 31
Most Recent Quarter (mrq): Sep 30, 2011
Profitability
Profit Margin (TTM): N/A
Operating Margin : -271,305.99%
Management Effectiveness
Return on Assets : -32.04%
Return on Equity : N/A
Income Statement
Revenue : 50.00K
Revenue Per Share : 0.00
Qtrly Revenue Growth (yoy): N/A
Gross Profit : 93.00K
EBITDA 6: -119.65M
Net Income Avl to Common : -162.71M
Diluted EPS : -1.36
Qtrly Earnings Growth (yoy): N/A
Balance Sheet
Total Cash (mrq): 23.30M
Total Cash Per Share (mrq): 0.19
Total Debt (mrq): 487.51M
Total Debt/Equity (mrq): N/A
Current Ratio (mrq): 1.56
Book Value Per Share (mrq): -2.30
Cash Flow Statement
Operating Cash Flow : -142.45M
Levered Free Cash Flow : -90.12M

Nice operating margin there, a truly whooping and impressive number. Also, it certainly appears that Mannkind is a cash burning company.

Avg Vol (3 month): 796,258
Avg Vol (10 day): 1,391,520
Shares Outstanding: 122.34M
Float: 74.22M
% Held by Insiders: 39.32%
% Held by Institutions: 19.40%
Shares Short (as of Jan 13, 2012): 28.42M
Short Ratio (as of Jan 13, 2012): 35.50
Short % of Float (as of Jan 13, 2012): 35.90%
Shares Short (prior month): 27.07M

I wonder what number hits the reader in the face the hardest? Could it be the massive short interest of 28 million shares? (And only heaven knows how many more shares are short due to manipulative flash trading, aka naked shorts.)

A Curious "Mann"

I cannot say I blame people for wanting to short the pants off of Mannkind, but they might want to consider one very important wild-card that could squeeze them tighter than an angry Boa-Constrictor juiced on caffeine: Alfred Mann, the billionaire founder of MannKind. Mann is an American entrepreneur and philanthropist. According to Forbes magazine, his estimated net worth exceeded $2.2 billion as of 2007, ranking him the 204th richest man in America and the 390th richest man in the world.

Mann has plenty of money to burn and shorts need to fully consider this obvious fact. It is not likely Mannkind will run out of money because Mann can personally afford to keep the company afloat. Mann can also afford the very best scientists money can buy to ensure the company will eventually succeed in getting their drugs to market. In a recent article of mine, I write how philanthropy plays a major factor in supporting these high tech bio-pharmas with experimental drugs. Mann is one such person who fits this bill exactly.

A person who has had the kind of success as Mann is not the type of person who quits at anything. Mann is an extremely intelligent man, and I believe that he will eventually work Mannkind into a very successful company.

A Curious Case in Need of Resolution

On one hand, the numbers for Mannkind and the progression of its drug candidates look horrendous. On the other hand, the past success of Alfred Mann is hard to ignore along with the massive short interest in Mannkind. I truly wonder what a short squeeze would look like with Mannkind stock.

A curious case indeed.

Source: The Curious Case Of MannKind Corporation