MannKind Corp. recently announced that it satisfied the conditions for the second tranche of $40 million of 9.75% senior secured convertible notes under its finance agreement with Deerfield Management Company L.P. (Deerfield).
We note that in Jul 2013 the companies entered into a Facility Agreement, as per which MannKind has ensured financing worth $160 million from Deerfield. Deerfield has agreed to provide the loan through its purchase of four equal tranches of senior secured notes from MannKind. The notes, due to mature in 2019, will carry a yearly interest of 9.75%.
Deerfield paid the first of the four $40 million tranches following the closure of the deal. The next tranche was expected to be received following the achievement of results from MannKind’s phase III studies (Study 171 and Study175) on Afrezza. Afrezza, MannKind’s lead candidate, is being developed for the treatment of type I or type II diabetes. MannKind recently announced that both the studies met its primary objectives and Afrezza was well tolerated during the study. MannKind expects to receive the second tranche of $40 million by Sep 6, 2013.
The third tranche is expected to be on the repayment of its 3.75% Senior Convertible Notes due 2013. The final payment will be received on the approval of Afrezza by the U.S. Food and Drug Administration (FDA). MannKind further stated in its press release that a portion of the loan amount can be converted to shares of its common stock after a specified time following the publication of data from the Afrezza studies. As per the agreement, Deerfield received milestone rights from MannKind. Deerfield will receive up to $90 million on the achievement of some strategic and sales milestones.
Moreover, MannKind stated that less than 6 million shares will be issued on conversion if the conversion price is more than $6.67. Moreover, less than 12 million shares will be issued on conversion if the price is below $3.33. MannKind also mentioned that if the conversion price is between $3.33 and $6.67, not more than $40 million of common stock will be issued on conversion.
We are encouraged by MannKind’s efforts to raise funds. We expect the company to utilize the amount raised on Afrezza. The company is totally dependent on the success of the diabetes candidate.
Meanwhile, we expect investor focus to remain on Afrezza going forward. MannKind now plans to file the amended new drug application to the FDA for the candidate in early fourth quarter of 2013 based on positive results from phase III studies.
However, we remain concerned about the company’s over dependence on Afrezza. Any setback related to the diabetes candidate will be catastrophic for the company.
MannKind, a biopharma stock, presently carries a Zacks Rank #3 (Hold). Other biopharma stocks, such as Actelion Ltd. (ALIOF - Snapshot Report) , Alexion Pharmaceuticals, Inc. (ALXN - Analyst Report) and Anthera Pharmaceuticals, Inc. (ANTH - Snapshot Report) are comparatively well placed. While Actelion carries a Zacks Rank #1 (Strong Buy), Alexion and Anthera carry a Zacks Rank #2 (Buy).