MannKind (MNKD) investors saw a ray of hope yesterday when Reuters reported that the company is working with investment bankers on strategic options that could include a sale of the company.
According to Reuiters, unidentified sources indicate that MannKind holding confidential deliberations on various strategic options. The Reuters story was the first time since the Afrezza deal fell apart that there has been news in print speculating a possible sale. MannKind stock went up on the news as the market closed on January 26th, and is up in pre-market on January 27th on an additional coverage about the speculation.
The news seems to be enough to get the equity near a critical level of $1 per share that would, if the closing bid is above $1, reset the de-listing clock. This would be a big win for MannKind and its shareholders, but could also simply be a delay in the inevitable.
MannKind has been out of compliance with NASDAQ listing rules for several days. On February 17th, if the stock does not recover, will get a de-listing notice from NASDAQ. De-listing is a process which potentially carries several months of applications and appeals. That being said, if the company does get a delisting letter, it must detail a plan that will get it back into compliance. A reverse split is a very popular option by companies in a similar situation.
Some investors are getting hung up on the fact that MannKind can avoid delisting by trading for 10 consecutive days in the compliance zone, on the appeal process, and on the idea that a reverse split may be good.
The reality is that it is the underlying fundamental issues that brought about non-compliance are never really repaired by a reverse split. Essentially a reverse split is an accounting function whereby the number of outstanding shares is reduced thus bringing the per share price upward.
Whether investors want to acknowledge it or not, the company is in a desperate situation. The one drug, Afrezza, that the company has on the market has not been selling well and Sanofi, which partnered with MannKind on Afrezza pulled out. This gives MannKind back the drug, but means that the company either needs to market it alone or find a new partner. Marketing it alone would be a monumental task, and the company cash situation would seem to indicate that such a possibility is not viable. MannKind reports that it has enough cash to last only until the second half of this year.
MannKind followed the Sanofi news with a CEO shuffle. The lead choice for CEO could not take the helm because of non-compete clauses, and the company shifted to its CFO, Matthew Pfeffer to an additional role as CEO. This dynamic gave both bulls and bears ammunition in their respective arguments, but the stock price remained below $1 per share.
The CEO shuffle was followed by an announcement of a deal with a newly formed company called Receptor Life Sciences. The Receptor Life deal was essentially a cryptic one which gave Receptor Life Sciences rights to technology but brought no up front cash. Even speculation that billionaire Paul Allen (of Microsoft fame) was behind Recptor Life Sciences, the stock remained below the NASDAQ compliance line.
There will be those that argue that this latest rumor is simply a ploy to boost the stock price. That may or may not be true. What investors need to consider is that even if it is enough to regain NASDAQ compliance, if the news flow on this stops, the stock will likely dip back below and a de-listing clock will start again.
In my opinion the only thing that will help the stock price of this equity is a deal that partners Afrezza or a buyout. Neither of these will likely make some investors that bought in near $8 to $10 per share whole in the near term. Simply stated, the sales data on Afrezza is underwhelming at best, and that can not be ignored.
The current market cap of MannKind is about $400 million. Even if an offer were to quadruple the current stock price, many investors would still be under water. This is a very real consideration that investors need to think about. All of the advantage in this equity is with the speculative traders that bought at the lowest levels. A quadruple for them is a nice trade.
If the buyout rumor becomes a "boy who cried wolf" situation, the challenges in getting a good deal done become more difficult. It is the next few days that will be important. If somehow this latest speculation can get more than 1 potential buyer in discussion, then we could see a nice run with the stock. I, next week we are seeing the speculation lose steam, we will likely see this stock retreat again.
The question of the moment is whether the company can get above a $1 bid at just one close prior to February 17th. Even if temporary, it will reset a clock and take the company into March or April before a non-compliance letter is sent. That allows a quarterly call to happen where we can perhaps get some more concrete details on the plans that this company has.
As stated, the advantages at the moment are with speculative traders playing the recent lows and news flows. Stay Tuned!