Execution missteps in the company's bid to win FDA approval led to unexpected trial costs and spending associated with management's overly enthusiastic sales projections have saddled MannKind with a troubling balance sheet.
Ultimately, without a pick-up in sales, MannKind's $107 million in cash on the books may not be enough to make good on its swelling liabilities.
Removing the $170 million in deferred payments tied to its collaboration with Sanofi that, for accounting reasons, shows up under short-term liabilities, MannKind's total liabilities still total nearly $300 million, including about $170 million that is categorized as current.
This means that MannKind's current ratio, a quick-and-dirty calculation that shows how able a company is to make good on its short term obligations, is just 0.43, which is down from 0.66 earlier this year.
Can MannKind turn a corner?
Investors that remain optimistic over MannKind's future believe that sales should increase once more insurers ink favorable deals with the company that result in Afrezza getting placed on drug formularies.
Appearing on those formularies could reduce the burden on doctors and patients hoping to get approved for Afrezza reimbursement, in turn leading to prescription growth.
If so, then the next couple quarters will be critical. Typically, it can take six to nine months for a review that could result in permanent placement on a formulary, so those decisions are happening soon, if not already.
A pickup in sales is critical to MannKind's survival given that it gave up 65% of the rights to Afrezza's profit (or loss) as part of its licensing deal with Sanofi. Also, MannKind's product losses on Afrezza are running at about $12 million per quarter and MannKind has been covering its share of those losses by borrowing the money from Sanofi. If Afrezza becomes profitable, MannKind will need to pay Sanofi back before any money tied to Afrezza before it can reward investors. If MannKind can't pay back Sanofi, then Sanofi can take over MannKind's pledged assets, which in turn could significantly impact the company.
If sales don't pick-up, then its unclear to me what the future will hold for the company. Sanofi has an option to exit its relationship with MannKind as early as next year, and although MannKind has said it's exploring the use of its inhalable technology for other medicine, it could be a long wait before any additional products make it to market. For those reasons, MannKind is far too risky of a bet for investors to own.
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The article MannKind Cuts Its Headcount, But Will It Matter? originally appeared on Fool.com.
Todd Campbell has no position in any stocks mentioned. Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may have positions in the companies mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .
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