Correction: MannKind converted $8 million of debt into 1.9 million shares of company stock. A typing error in the original version of the story said the conversion was 9 million shares. The story has been corrected.
VALENCIA, Calif. (TheStreet) -- MannKind (MNKD) failed to settle a $100 million convertible loan before an Aug. 15 deadline. The embattled diabetes-drug company is trying a second time to clear the debt, but on even less favorable terms, which will bleed off a larger chunk of cash.
The slow commercial launch of Afrezza, MannKind's inhaled mealtime insulin, continues to be the root cause of the company's balance-sheet woes. Afrezza prescriptions are stuck in neutral and net sales -- $2.2 million in the just-reported second quarter -- are well below expectations.
Absent any concrete evidence that Afrezza can become a profitable diabetes product, a majority of MannKind's current debt holders refused to exchange their paper for company stock by the August 15 deadline. That lack of confidence in MannKind's future is exacerbating the already-steep slide in the company's market value.
At Wednesday's $3.99 close, MannKind shares are down 24% this year and more than 60% since Afrezza's approval in June 2014.
MannKind's most pressing debt problem centers on a $57 million portion of the $100 million loan, which the company sought to convert into equity via a pricing scheme similar to a death-spiral convert. Over the course of 10 trading days earlier this month, MannKind was only able to convert $8 million of the debt into 1.9 million shares of newly issued company stock, according to its most recent quarterly report filed with the Securities and Exchange Commission.
The refusal of a majority of debt holders to accept MannKind equity ahead of the Aug. 15 deadline forced the company to roll over $32 million in unsettled debt until the end of September and try another stock-for-debt exchange. It's unclear if debt holders will be more amenable to accepting MannKind stock this time around.
Keeping track of the details and numbers is a challenge but here's a simple summary of MannKind's original proposal, announced on July 29, to extinguish the $100 million debt: 1. $28 million rolled over into new, 2018 debt; 2. $57 million converted into MannKind equity; and 3. $15 million repaid with company cash.
That effort failed, so MannKind's Plan B to knock out the $100 million in debt, announced on Aug. 13, looks like this: 1. $28 million rolled over into new, 2018 debt (done); 2. $8 million converted into MannKind equity (done); 3. $32 million converted into MannKind equity (ongoing); and 4. $32 million repaid with company cash (ongoing).
If all goes right, MannKind will use more than twice as much cash ($32 million) to settle the debt than planned originally ($15 million).
If the $32 million in debt cannot be converted into equity, MannKind will be forced to use even more cash, the company warned in its most recent 10-Q.
Worst-case scenario: MannKind could be forced to use $64 million in cash to settle the August 2015 debt, if the stock-for-debt exchange scheme fails again. The company had $107 million in cash on hand as of June 30, of which $25 million is restricted and cannot be touched due to other outstanding debt obligations. Factor in normal operating expenses and MannKind would be essentially insolvent unless a $30 million "rescue" loan available to the company from founder Al Mann is utilized.
Meantime, MannKind's debt owed to Sanofi under the Afrezza marketing joint venture grew by $12.8 million in the second quarter and now totals $28.4 million.
At the end of June, MannKind's total stockholders' deficit was $115 million, up from $74 million at the end of 2014.