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MannKind Corporation (MNKD - Analyst Report) recently announced that it will be looking to offer and sell shares of its common stock and warrants to purchase shares of its common stock in an underwritten public offering. MannKind did not mention the size and terms of the offering.

MannKind also plans to issue to The Mann Group LLC restricted shares and warrants to purchase shares of its common stock. The Mann Group is controlled by MannKind’s chief executive officer and principal shareholder, Alfred E. Mann.

The issuance of restricted shares and warrants to purchase shares of its common stock is aimed at canceling the outstanding debt of the company. The public offering of common stock and warrants and the private sale of common stock and warrants to its principal entity are mutually exclusive to each other.

As of the second quarter of 2012, the company’s debt was approximately $429.3 million. MannKind’s cash balance at the end of the same period was $31.6 million. The company reported a sequentially low cash bun of $24.7 million in the second quarter.

But the company forewarned that the expenses will increase towards the end of 2012. MannKind expects cash burn of about $10-$12 million per month in 2012.

We note that the company’s principal pipeline candidate is Afrezza, which received a second complete response letter (CRL) from the US Food and Drug Administration (FDA) in January 2011. While issuing the CRL, the US regulatory authority had asked MannKind to conduct two additional trials, one for patients with type I diabetes (MKC-171 study) and the other for type II diabetes patients (MKC-175).

The requirement of additional trials has pushed up MannKind’s research and development expenses. Following the receipt of the second CRL, MannKind already trimmed its workforce by approximately 41% and cancelled its insulin supply deal with N.V. Organon, a subsidiary of Merck & Co. Inc. (MRK - Analyst Report).

We remind investors that the company recently completed the enrollment process for both the trials. The trials are expected to complete in the second quarter of 2013 and the company expects to submit a new drug application by the third quarter of 2013.

Our Recommendation

Currently, we have a Neutral recommendation on MannKind, which carries a Zacks #3 Rank (short-term Hold rating). MannKind is primarily dependent on the successful development of Afrezza. The company’s decision to raise fund was expected given the cash burn. We believe an inability to raise funds will affect Afrezza’s future.

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