MannKind Is Still Too Heavy to Avoid the Afrezza Crash Landing

A leaky hot-air balloon.

That's MannKind (MNKD) . The financial moves announced Wednesday were little more than throwing ballast overboard. The company may stay afloat a bit longer, but there's nothing it can do to prevent the inevitable crash landing.

Mannkind started selling Afrezza inhaled insulin on July 25. In what amounts to just over two months, net sales for the third quarter were $573,000. The cost of goods sold during the same period were $4.2 million. Mannkind's gross margin was negative 633%.

But MannKind bulls -- the rainbow-hued unicorns of the investment world -- believe the company's marketing efforts are only getting started. In the next weeks and months, Afrezza sales will increase and the gross margin will improve, they say.

Maybe, but the facts suggest otherwise.

There are fewer things on earth flatter than Afrezza sales since MannKind took over marketing. Go ahead if you want to give the company credit for stopping the steep slide in Afrezza prescriptions, but that just means the hole isn't getting any deeper.

This chart actually minimizes MannKind's problem because it starts at the beginning of 2016. Sanofi (SNY) , MannKind's dearly departed marketing partner, began selling Afrezza in February 2015, so almost an entire year earlier. NOT selling Afrezza would be more accurate. The product has been available to diabetics for almost two years. Failing.

And about those COGS -- the cost of goods sold. They're always going to be high. Afrezza is an expensive product to manufacture. Bulk insulin is not just being dissolved into solution and poured into vials. MannKind has to formulate the bulk insulin into inhalable particles of a very particular size. The insulin particles are then packaged into individual dose cartridges.

On top of all that, there's the cost of make the inhalers necessary to deliver Afrezza.

Perhaps you haven't noticed, but the insulin market is very competitive. Insurers and pharmacy benefit managers are playing hardball, trading access to their customers in exchange for higher and higher rebates.

Novo Nordisk (NVO) , the world's largest insulin maker, lowered forecasts for 2016 and 2017 because profit margins in the U.S. insulin market are deteriorating.

"The market environment in the USA has become significantly more challenging, negatively impacting future pricing for Novo Nordisk's products," the company said.

The gross-to-net discount on Afrezza in the third quarter was 32%. It's not getting any better. MannKind thinks it can compete with a product that is fundamentally more expensive?

Please, get a grip.

Adam Feuerstein writes regularly for TheStreet. In keeping with company editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback; click here to send him an email.

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