Mannkind Corporation (NASDAQ:MNKD)
Event
Mannkind put a $50 million At-TheMarket financing facility (ATM) in place this week. The financing facility allows the company to raise funds by telling the selling agent to sell shares at the prevailing market price (hence the name At-The Market). The company does not have to issue any further disclosures to the public when they sell shares. While $50 million helps, this financing is just a stop-gap measure, read on to understand why.
Analysis
At Red Acre we have been monitoring the MNKD cash situation closely since before the Affinity 1 and 2 clinical trials read out last year. The company has been running on vapors for a while now, and right after their year-end conference call, we provided an update that laid out MNKD's cash situation going in to the upcoming FDA approval decision for Afrezza. We've been on record stating that MNKD would be raising cash through some kind of secondary offering this year, and the ATM facility proves us right.
Why the ATM is Just a Stop-Gap
- According to their latest Annual repot, in 2013 MNKD's monthly cash burn was $10.7 million per month
- This puts April 15th cash at ~ $33.3 million without the ATM facility
- A 3 month PDUFA delay is likely in the cards
- After a 3-month delay, cash on hand will be around $51 million
- Even with the aditional $40 million from Deerfield - this is nowhere near enough to launch Afrezza
Given that the Mannkind Advisory committee meeting is just 2 weeks before the PDUFA date, MNKD is most likely expecting a standard 3-month PDUFA extension, which means another $32.1 million in cash burn. The ATM facility, if fully used, would allow MNKD to arrive at PDUFA with about $51 million in cash on hand. If Afrezza is approved, MNKD will have another $40 million from Deerfield available, if not, $51 million is only 5 months' cash runway at current burn rates.
Note also, that ATM facility includes language that:
We may offer and sell shares of our common stock, $0.01 par value per share, having an aggregate offering price of up to $50,000,000 from time to time through MLV or Brinson Patrick, whom we collectively refer to herein as the Agents, as our sales agents provided that in no event will we sell more than 25,000,000 shares in this offering.
In other words, MNKD is willing to issue shares as low as $2 per share. The only way the stock will be $2/share is if the AD COMM does not go well for MNKD.
Red Acre Take Away
Once the company receives their advanced copy of the FDA briefing documents (typically 2 to 3 weeks ahead of the PDUFA date), the company will be in possession of material non-public information which could potentially affect the stock. Selling while in possession of potentially negative information (any negative information in the FDA documents) could open the company up to securities lawsuits later on.
For this reason, we believe that MNKD may use the bulk of the ATM facility in the next week or so. We are on the sidelines for MNKD's binary event.
