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Mannkind Making Another Attempt to Launch IPO

Mannkind Making Another Attempt to Launch IPO By SHELLY GARCIA Senior Reporter Al Mann, the irrepressible godfather of the biotech industry, is getting ready to drive yet another company onto center stage. Mann’s latest venture, Mannkind Corp., a Valencia-based biopharmaceutical firm, has filed its intention to go public and is seeking to raise about $86 million. The immediate outlook for the company, which is working to develop a variety of therapies for diabetes, cancer and auto-immune diseases, is hardly sanguine. Like most in the biotech field, Mannkind has spent hundreds of millions, the majority of it Mann’s own money, over about a dozen years to formulate its lead product, an insulin delivery system for diabetes, and the company expects to incur even more losses before its product is ready for market. But that is not likely to dampen enthusiasm for the offering. “Al has a fantastic track record with picking the right market trends and products to take to market,” said John O. Johnson, managing director of The Spartan Group LLC, an investment banking firm in Burbank. Since the 1950s, Mann, the septuagenarian billionaire, has fathered some 10 companies, most recently selling off insulin pump maker MiniMed Inc. to Medtronic Inc. for more than $3 billion. He formed Mannkind in 1991 and three years ago, merged it with two of his other startups, AlleCure Corp. and CTL Immunotherapies Corp. which had been focusing on autoimmune and cancer therapies respectively. Since then, Mann has pumped $367 million into the company, $228 million of that his own money, and the rest through private equity and other stock placements, according to the registration statement filed. Mannkind has no revenues. Company officials are forbidden by SEC regulations from discussing an IPO until the transaction is completed, but Mann conceded in a Los Angeles Business Journal interview last year that funding Mannkind had eaten up a lot of capital. The proceeds of the IPO will be used mostly to continue to develop the Technosphere Insulin System, which is currently in late Phase II clinical trials, expand manufacturing operations for the product and expand other product development programs at the company. The offering is not likely to raise nearly enough to see the company through to marketing its Technosphere Insulin System, but the idea is to raise enough to move the research to a later stage when the shares are likely to be more valuable. The strategy is one that biopharmaceutical companies typically employ. “The earlier the stage, the bigger the discounts,” said Teresa Young, a partner who leads the life sciences practice for the Pacific Southwest region at Deloitte. “Obviously the market is taking into account market risk as these are pricing.” Three phases Pharmaceutical products go through three phases of trials before FDA approval is sought. The first phase determines efficacy; the second is proof of concept and the third is actual clinical trials on patients. There is a great deal of risk to an investor at any one of these phases, but the farther along the product is the greater the chances that it will reach the commercial marketplace. “The money will get them to the next stage where they have a much more valued place in the trajectory, and that will enjoin a higher value,” said Johnson. “In high growth companies, that’s a typical strategy.” Mann, who is 78, owns 65 percent of the company, and draws a mere $100,000 in annual salary (plus stock options), according to the registration statement, but he has no intention of scaling back his involvement. “By virtue of his holdings he (Mann) is and will be able to individually elect the members of our board of directors, control our management and affairs and prevent corporate transactions such as mergers, consolidations of the sales of all or substantially all of our assets ” the registration statement reads. Upon his death, his shares will be left to the Alfred E. Mann Medical Research Organization and AEM Foundation for Biomedical Engineering, not-for-profit research groups that fund Mann’s many charities. The membership of both groups includes four of Mann’s six children. Back into the market Mannkind, which has not yet priced its shares or reported a date for the offering, is one of a growing number of biotech and biomedical companies that have ventured back into the public financing markets. UBS Securities LLC, Piper Jaffray & Co., Wachovia Capital Markets LLC, Jefferies & Co Inc. and Harris Nesbitt Corp. are underwriting the offer. The company two years ago pulled back IPO plans when the public market for all kinds of companies virtually dried up. The recent resurgence in activity is due to several factors, Young said. “One is that the VC market really sees this as one of the better places to invest right now. And this also is an industry that is finally maturing.” Like a number of others, Mannkind has progressed closer to its endgame when an investment would pay off for investors. Also not to be overlooked is the attractiveness of the biopharmaceutical sector, which is generally engaged in solving the problems of aging. That, say investment and banking experts, is why biotech companies, unlike other kinds of technology businesses, have been able to seek public funding without any profits or, in a number of cases, revenues. “A lot depends on those trends and the probability of those trends,” Johnson said. “Fortunately, what Mannkind has is in part its positioning in the market with those demographics and Al Mann backing it.”

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