VALENCIA, Calif. (TheStreet) -- MannKind's (MNKD) first-quarter conference call on Friday morning didn't go well. Management admitted the Afrezza commercial launch is slower than expected. Cash burn and debt remains problems which need to be addressed soon.
Shares of MannKind were slipping 0.4% to $4.01 The stock has lost almost 70% of its value since Afrezza, the inhaled insulin product, was approved at the end of last June.
Five thoughts and observations about MannKind's first quarter performance:
1. MannKind's 35% share of the Afrezza joint venture loss was $12.4 million in the March quarter, which means the overall loss was $35.4 million. Sanofi SNY markets Afrezza and receives 65% of the joint venture's profits, or losses, in this case. Afrezza net sales in the first quarter were 1 million euros, Sanofi disclosed last month.
If Afrezza sales perk up, the financial health of the joint venture might improve -- losses will narrow or there may even be profits. But right now, Sanofi is losing money on every Afrezza prescription, and that's not good, especially when the French pharma giant makes money more easily selling its other new diabetes product Toujeo.
One more thing to worry about the Afrezza joint venture. Sales may perk up, but costs will also increase as Sanofi doles out cash to pay for direct-to-consumer advertising in the third quarter and starts the large, follow-on clinical trials required by the U.S. Food and Drug Administration.
2. MannKind executives are way too cavalier when describing the company's growing debt to Sanofi. On the call, Chief Financial Officer Matt Pfeffer told investors not to worry about the $12.4 million in losses from the Afrezza joint venture because it's not recorded on the company's income statement. Instead, the loss is added to the money MannKind borrows from Sanofi under a $175 million line of credit.
Okay, but that borrowing must be repaid eventually. It's not free money, MannKind's outstanding obligation to Sanofi is now $15.4 million. That debt will grow, which means MannKind's ability to generate a profit from Afrezza is pushed further into the future. (If it ever happens at all.)
3. Speaking of debt, there's still the looming issue of the $100 million convertible debt which must be repaid or renegotiated by Aug. 15. The debt converts to MannKind equity at $6.80 per share, well above the current stock price.
On the call, CFO Pfeffer said he doesn't envision using dilutive financing (a stock sale) to raise cash to pay the $100 million debt. He said the company can settle the debt with existing cash. Really? MannKind ended the first quarter with $120 million in cash. The company is burning $20 million-plus per quarter outside of the Afrezza joint venture. MannKind can borrow another $30 million from founder Al Mann and raise $50 million through an existing At-The-Market equity facility (which is dilutive), but is that enough to keep the company afloat? Hardly seem like it.
4. Chief executive Hakan Edstrom cancelled his 10b5-1 insider trading plan. He won't sell any more stock. Great, you listened to me, but if MannKind is a bargain, you should be buying stock, Hakan.
5. On the call, MannKind executives admitted that Afrezza is not launching well. Doctors are reluctant to prescribe Afrezza because of the FDA's requirement that all patients be pre-screened with a lung function (spirometry) test. Insurance companies are also putting up barriers to Afrezza by requiring prior authorization before prescriptions can be filled. Insurance companies are also denying some Afrezza prescriptions, the company said.
Sanofi and MannKind are taking steps to reverse these impediments to Afrezza's launch, but details on the call were scant.