Investors in MannKind (NASDAQ:MNKD) that were not aware of the RBC Investor conference may want to take the time to listen to the webcast. Management offered up some details on the strategies going forward, and despite what has been a rough few months, put on a strong face.
The first thing that investors need to grasp before listening to the call is to take what is said with a grain of salt. Managements of companies typically try to paint a very pretty picture even in the most dire situations. Reading between the lines on this call leaves, once again, a lot of room for speculation.
High-points of the call:
- Right off of the bat, MannKind addressed its cash situation as of the end of 2015. The company indicated that they finished the year with about $59.5 million in cash. The obvious concern with the cash level is that even management acknowledges that this sum will only get through the first half of the year. Raising additional cash will have challenges, and raising cash with equity is something that management says is a last choice.
- MannKind stated that it intends to keep control of Afrezza in the United States and "go it alone" as a "small and nimble company". Management indicated that it may try to identify an entity to "co-promote", but indicated that it is preparing as if it is going to market Afrezza by itself. This situation should be approached by investors with caution. Marketing a drug on a national basis is not an inexpensive endeavor. All-In costs of a single drug rep can run between $150,000 and $200,000 annually. Put a few hundred reps on the street and the costs add up quickly. MannKind, with only one drug to market may save money by contracting reps that also represent other drugs. No matter how you slice it though, going it alone is costly. With limited cash left, and with the company assuming the marketing responsibilities in the beginning of April, the challenges are not small. MannKind says it is up for the task.
- MannKind indicated that it is exploring partnering outside of the U.S. and that interested parties that were losing bidders the first time around contacted management within a day of the announcement that Sanofi was terminating its deal. This is one area where the company may be able to get some cash to help its situation. How lucrative a new and smaller deal would be is unknown. What these potential suitors do know is that Sanofi put forth "substantial" efforts and ultimately could not make sales get to the needed levels.
- MannKind indicated that it has some new strategies that it will combine with strategies deployed by Sanofi. The company indicates that Afrezza is still not very well known by consumers and doctors and that some attributes, such as how fast its insulin works, can help spread the word. Management indicates "positive" feedback from those that have tried the drug and that as a leaner company may be able to lower the price of Afrezza while competitors are raising prices of insulin. The biggest problem I see with these forward looking statements boils down to cash. Trying to get the word out on Twitter sounds like cutting edge stuff, but really has not proven to be a great vehicle to sell prescription drugs. Television advertising is a massive expense, and even flooding the market with ads does not guarantee success.
- MannKind indicated that its technosphere technology has certain potential, but said more than once that it is not a priority at the moment. In fact, management stated that to conserve capital that it will need to "starve" the pipeline. Virtually the entire focus of the next several months will be Afrezza. The pipeline carries potential value, but the company needs to get its financials in order before realizing that potential can even be considered. In my opinion analysts will assign minimal value to the pipeline for many months. That could present opportunity, but even that is speculative.
- Management addressed the situation about Al Mann stepping down. Age and ability to travel was cited, but it was also indicated that Mann has been reluctant to make the move. Mann is still an employee and is still involved as the closest consultant to CEO Matt Pfeiffer.
- MannKind indicated that short term debt is about $5 million and that Deerfield seems interested in helping the company garner needed cash. The longer term debt has time-lines that do not impact the immediate situation, but could limit the companies ability to raise capital in the markets or take on more debt. What is clearly critical is that MannKind get some sort of deal(s)done on Afrezza outside the United States. If up front payments in such deals are substantial enough to take off the pressure for 6 or even 9 months, it would make all of the difference in the world as things relate to this equity.
Matt Pfeiffer took the opportunity in his closing remarks to predict an "Epic Turnaround" that could be the stuff that makes a great movie. Overall, the presentation was sales pitch of hope, which should be expected. Transparency on plans is still quite vague, and any guidance on sales has been kept off of the table. MannKind is currently trading below $1.00 per share and could represent a decent speculative play if certain events time out well. That being said, many cautions still exist, and the stock's reaction to the call today was negative.
In my opinion the best opportunities for MannKind rest solely in whether or not it can ink partnership deals for Afrezza outside the United States, and whether or not it will have a partner help co-promote the drug in the United States. In my opinion being small and nimble has its attributes, but MannKind is small, nimble, and POOR. If deals can not bring in cash to drive self-funded marketing efforts, those efforts may not have enough steam to bring up awareness. The biggest risk in this play is in the next 3 to 5 months, with the level of cash burn in Q1 and Q2 being critical. As the cash level dwindles, the leverage MannKind has in ANY negotiation diminish.
In closing, there are two types of analysts that cover equities. Sell side analysts and buy side analysts. A buy side analyst typically wants to grasp the risk associated with a situation. A sell side analyst typically tries to assess where the company will be based on certain assumptions. In this situation, with the stock clearly beat up, investors would be well served to understand very real risks in this equity. There is a chance of an epic story here. At the moment it is an epic failure. Getting to an epic success is by no means guaranteed. Stay Tuned!
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I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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