MannKind Remains in Peril

Highlighted stocks include MannKind (MNKD), Pfizer Ltd. (PFE), Eli Lilly & Co. (LLY) and Novo Nordisk (NVO).

MannKind Relies Heavily on Afresa for Growth

Afresa (inhaled insulin) is MannKind Corporation's (MNKD) only late-stage drug candidate, and the company is wrapping up all phase III trials. The NDA [new drug application] filing with the FDA is expected late this month.

However, the inhaled insulin market has witnessed a major upheaval in recent times with Pfizer (PFE), Lilly (LLY) and Novo Nordisk (NVO) withdrawing their drug or late-stage candidates citing lack of market prospect for this class of drugs. Occurrence of lung cancer in diabetic patients treated with Exubera and the FDA panel's stricter recommendations for the approval of diabetes drugs have further cast a shadow over the future of Afresa.

Besides Afresa, there are no other visible candidates in the pipeline. The thin pipeline puts MannKind in a higher risk category than most of its peers. MannKind has currently kept all partnership talks on hold. At current market conditions and with the bleak outlook for the inhaled insulin drugs, it should prove to be extremely difficult to find a partner for Afresa. With no commercialization experience at all and limited infrastructure in place, we doubt if Afresa can provide that kind of growth MannKind needs to keep the company afloat.  

Cash Burn a Matter of Grave Concern

With no product on the market and no revenue at all, we are very concerned about the company's financial position. In 4Q08, net loss was $83.3 million ($0.82 per share), compared to $75 million ($0.75 per share) in 4Q07. For the full year, the company posted a loss of $303 million.

As of December 31, 2008, the company had only $46.5 million in cash, cash equivalents and marketable securities.  MannKind used $352 million for operations in 2008. Although Mannkind has finished all phase III trials for Afresa, the company is preparing for the commercialization of this drug.

Therefore, we believe cash burn will stay high in the coming quarters. The company entered into a new loan agreement with Al Mann, which provides the company with a credit facility of $350 million.

Therefore, we maintain our Sell rating of MNKD with a price target of $1.5.

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