MannKind Sells Building, Extends Cash Runway: The Good And The Bad

| About: MannKind Corporation (MNKD)
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Summary

Company enters agreement to sell office building for $17.3 million.

Cash from the deal could extend financial runway by 6 to 10 weeks.

Both bulls and bears have stances on the news, as market reaction is muted.

MannKind (NASDAQ:MNKD) announced today in an SEC filing that the company has entered into an agreement with Rexford Industrial Realty to sell its Valencia, California, office building and its contents for $17.3 million. The news brought about a small uptick in the stock price, but the muted reaction is an indication of how bulls and bears view the deal.

According to the 8K, Rexford will acquire:

  • 11.41 acres of land
  • Approximately 146,000 square foot building
  • All of the improvements, personal property, equipment, supplies and fixtures owned by the Company and used in the operation of, and located at, such property, except certain excluded items (collectively, the "Property").

The purchase price of the Property is $17.3 million and a deposit of $500,000 has been placed in escrow. It is anticipated that the balance will be deposited with the escrow holder in conjunction with the closing of the transaction.

This is the property that MannKind had leveraged in its Sanofi (NYSE:SNY) deal. In a settlement with Sanofi in 2016, the company got its debt forgiven, and any encumbrances on the building removed. This sale has been widely discussed by both bulls and bears for several months. Bulls saw the building as a possible source of much needed cash, while bears thought that the company would have trouble moving the building. In the end, the deal which was struck allows both sides to claim victory.

The Bulls

The bulls love the fact that MannKind has an additional $17.3 million. This buys the company more time in trying to get its re-launch of Afrezza on the right track. Not only does the added cash buy the company time, it also gives the company a bit more leverage in any potential negotiations as it tries to seek out partners for Afrezza and/or Technospere. MannKind has been going through a bit over $2 million per week. Bulls will tend to say that the value of the sale represents 2 months of cash when it could be just a month and a half, but the important factor is that this cash will get the company beyond the end of Q2, This cash will certainly assist in keeping the cash balance above the $25 million that Deerfield requires the company to have. That essentially means the company does not have to dip into its $30 million dollar credit facility for at least 6 months.

The Bears

The bears will argue that the sale price of $17.3 million is a very steep discount from what was a $25 million asking price only 5 or 6 months ago. In addition the bears will argue that the contents had value, but seem to have been included in the deal. Bears will also argue that the low selling price is a key indicator in the lack of any material negotiating leverage for MannKind. Lastly,the bears will argue that the cash raised in this deal will provide only a month and a half of added runway and that this transaction does little to resolve the cash crunch faced by MannKind.

While both sides have valid points, I think that the bear side of this argument has more merit than the bull side. $17.3 million is a lot of money to the average person, but is very little when it comes to trying to launch a prescription drug, pay for clinical trials, market that drug, and launch an advertising campaign.

There was a point in time when it was appropriate to view MannKind as a speculative company with promise and possibilities. In my opinion investors need to be much more pragmatic about the company these days. Many investors have already lost substantial sums on this equity and have been holding onto threads of hope. The company is now running out of threads to provide and whether these threads are strong enough to be a lifeline is a burning question on the minds of many.

I try to assess things in a very matter-of-fact manner when a company is at this stage. Between cash concerns, sales concerns, and Nasdaq listing concerns the plate of despair is pretty full. The plate of hope rests with the concept that inhaled insulin will be a game changer or that somehow Receptor Life Sciences (a company that MannKind partnered with) will have a record setting testing and approval process of its yet-to-be-announced treatment.

In my opinion the only thing that has really changed as a result of this deal is that the company bought itself an additional 6 to 10 weeks of time in which to find something that will resolve many of the issues that ail this equity. I do not see that as very much time, and a pragmatic thinker would not either. I have always stated that it would take very compelling news to move this equity. The street wants to see deals that fund this company for a year, not a month. The reality is that MannKind has less assets now than it did before. While the cash this sale generated is probably more important than the building itself, and the optics of this deal, would be far better had the company gotten something close to the $25 million listing price that was once in place.

In closing, the situation remains the same. This equity remains highly speculative and will be dominated by traders. Afrezza is a great product fort some, and no compassionate person would want to see a drug fail if it helps. That being said, this is about investing with the goal of making money. MannKind remains in a big hole that will still be difficult to climb out of. Any positive feelings that the news of the past few days have delivered can be erased in a heartbeat if the anticipated reverse split news in announced in the next week or so. Stay cautious and stay tuned!

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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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