MannKind Corporation’s (MNKD) first quarter 2011 net loss of $0.34 per share was narrower than the year-ago loss of $0.40. The Zacks Consensus loss Estimate was $0.29. The narrower year-over-year loss was attributable to lower expenses incurred on research and development (R&D) in the reported quarter.
MannKind reported negligible revenues of $0.05 million in the first quarter of 2011. The company did not report any revenues in the comparable quarter of 2010.
R&D spend in the reported quarter declined 13.8% to $26.3 million. The reduction was attributable to the termination of the insulin supply deal with Merck’s (MRK) subsidiary Organon in February 2011. The termination of the transaction led to a reduction in raw material purchased by MannKind in the first quarter of 2011. MannKind did not have any insulin supplies due to the termination of the agreement.
MannKind cancelled the deal following the receipt of the second complete response letter (CRL) from the US Food and Drug Administration (FDA) in January 2011 for the company’s inhaled insulin candidate Afrezza. The candidate is being developed for treating type I and type II diabetes.
We remind investors that the first CRL was issued in March 2010. The agency accepted the company’s resubmitted new drug application in July 2010. The second CRL was issued in January this year.
While issuing the latest CRL, the FDA asked the company to conduct two phase III trials with Afrezza. One trial is earmarked for patients with type I diabetes and the other for type II diabetes patients. MannKind met with the FDA on May 4, 2011, regarding the contents of the CRL. Management stated the protocols of the studies were being finalized.
General and administrative (G&A) expenses increased 16.8% in the reported quarter to $11.8 million. The increase was attributable to the employee severance costs and other expenses incurred pertaining to the 41% work-force reduction at MannKind following the receipt of the second CRL. The headcount reduction coupled with the termination of the supply deal was aimed at bringing down operating costs at MannKind.
Our Take & Recommendation
We believe that the earnings report is a non-event for the company as investor focus will be on the fate of Afrezza going forward. We note that the requirement of additional trials will push up MannKind’s research and development expenses and cash burn.
Management expects the current cash balance and the available credit facility to sufficiently fund operations until the first quarter of 2012. MannKind will have to tap the capital market to raise additional resources once its cash runs out. Inability to raise sufficient funds could jeopardize Afrezza’s future development.
We prefer to remain on the sidelines until there is more visibility on the approval process for Afrezza. Consequently, we have a Neutral stance on MannKind in the long-run. The stock carries a Zacks #3 Rank.
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