Since the Food and Drug Administration's approval of its inhaled insulin product, Afrezza, in 2014, MannKind Corporation (NASDAQ: MNKD) has lost a staggering 90% of its value . And the company now appears to be hanging on by the skin of its proverbial teeth. The biotech, after all, is on track to have a mere $25 million in cash remaining by the end of the first quarter of this year, which is a serious problem for a company projected to burn around that same amount per quarter in 2018.
MannKind also recently decided to sally forth with a phase 1 trial for its experimental drug-device combination product, Treprostinil Technosphere, for the treatment of patients with pulmonary arterial hypertension -- potentially boosting its cash burn rate even higher heading into the back half of 2018. That's a mystifying move for a company in dire straits.
Despite these glaring cash flow problems, MannKind's stock remains a focal point for investors on the hunt for unusual growth opportunities.
The reason? The global insulin market is presently valued at close to $40 billion and it's expected to post a stunning compound annual growth rate of 8.1% for at least another next two years, according to a report by Markets and Markets. In other words, Afrezza's commercial opportunity is ridiculously large, especially compared to MannKind's present market cap of $329 million.
Can MannKind finally bridge this value gap to handsomely reward long-suffering shareholders and newcomers alike? Let's dig deeper to find out.
MannKind is, without question, a financial mess. But its more serious problem remains the grossly inadequate sales of Afrezza. In the latest quarter, for instance, the company reported generating a paltry $4.5 million in net revenue from Afrezza.
While that amount does represent an impressive 238% year-over-year bump, investors need to bear in mind that the company plowed $5 million into a direct-to-consumer television advertising campaign during the same period. So, it's hard to view this costly marketing campaign as anything but a failure. Afrezza's sales, after all, are still nowhere near where they need to be to keep MannKind alive.
As proof, Afrezza's sales are forecast to come in between $25 million to $30 million for the whole of 2018. Again, this annual sales forecast is a sizable jump compared to last year, but the absolute numbers (not percentages) are what matters at the end of the day. On that basis, Afrezza isn't getting the job done.
A light at the end of the tunnel?
MannKind and Afrezza have largely fallen off Wall Street's radar in the last year, thanks to the drug's anemic commercial launch. However, the investment bank H.C. Wainwright -- for reasons not altogether clear -- remains a stubborn bull on MannKind's shares despite these hurricane-force headwinds.
Without setting a solid plan for how MannKind can raise capital on favorable terms, for instance, the firm has stood by its juicy $7 price target, implying a monstrous 250% upside potential from current levels. The underlying reason for this optimism seems to be Wainwright's belief that Afrezza's sales can more than double in 2019.
The obvious problem here, though, is that even a doubling of Afrezza's sales to say $50 million per year won't solve the company's glaring capital problems. MannKind needs to raise a healthy chunk of capital just to make it to 2019, and then it'll need another infusion of cash to get through 2019. With the specter of multiple rounds of dilution coming down the pike, MannKind's shares will have a hard time reaching this $7 price target, at least organically.
Can MannKind overcome the odds?
Frankly, the answer is no. There's no compelling sign that Afrezza is about to go supernova to save MannKind from a date with bankruptcy court. All the company can do is keep diluting shareholders to push off this eventuality, and that's not an investment-worthy scenario.
So, even though CEO Michael Castagna has tried to paint the company as being on the path to " sustainable growth ," there's no real-world evidence to back up this assertion. MannKind remains solidly in survival mode, and the company has arguably entered a death spiral due to its exceedingly weak balance sheet.
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