MannKind Corp. climbed back from the brink of bankruptcy this year with a $105 million deal to develop a new lung disease treatment. In September, the Westlake Village pharmaceutical firm signed a licensing agreement with Maryland biotech company United Therapeutics to manufacture Treprostinil Technosphere, a proprietary treatment that pairs Mannkind’s inhalable drug delivery system with a compound used to treat pulmonary arterial hypertension. Under the deal, United Therapeutics will be responsible for selling and distributing the medication. Pending Federal Trade Commission approval, Mannkind will receive a $45 million upfront payment – money it urgently needed to replenish its cash reserves, which by the end of the second fiscal quarter had fallen to the point where some questioned whether bankruptcy was imminent. “What this really does is prove that Mannkind’s technology platform, that we’ve invested in for over 20 years, is valuable and does do something unique and different,” Dr. Michael Castagna, chief executive of Mannkind, told the Business Journal in September. In addition to the $45 million upfront, Mannkind stands to receive another $10 million for research and development and up to $50 million more in milestone payments, as well as royalties once the product hits the market, according to the company. Mannkind could also make an additional $40 million and receive royalty payments for hypertension treatments developed in collaboration with United Therapeutics. Seeking Alpha blogger Spencer Osborne, a frequent critic of Mannkind, acknowledged that the deal was good news for the firm. “Simply stated, this is a positive for MannKind,” Osborne said in a post on Sept. 5. “While it is not the ultimate solution, it is a big step in a good direction.” Diversified revenue The new partnership marks the beginning of Mannkind’s foray into revenue streams beyond its inhalable insulin drug Afrezza, its main product. The firm’s finances have long been plagued by slow sales of the drug, a consequence of attempting to break into the lucrative but competitive diabetes market, said Ahmed Enany, chief executive of the Southern California Biomedical Council. “The diabetes market is a tough market,” he said. “It’s a conservative market – endocrinologists aren’t going to shift from one modality of providing treatment to others so easily.” For this reason, it makes sense for the company to consider other opportunities to pair treatments with its delivery platform in case revenue from Afrezza is not enough to sustain the company, Enany added. “It’s a good deal, because it provides them with alternatives and infuses revenue resources into Mannkind,” he said. “It also creates excitement on the Street. … I think they are on the right track here.” Mannkind – the last of 17 companies founded by late billionaire entrepreneur Alfred Mann – has struggled from the start. It took three attempts before Afrezza gained approval from the U.S. Food and Drug Administration. Prescriptions for the medication have yet to take off. The annual return on investment for shares of the publicly traded company has averaged an annual loss of nearly 20 percent over the past 10 years. Time and time again, naysayers have spelled doom for the company as its debt climbed and its cash reserves dwindled. “The big thing that’s been an overhang on the company and the stock was the debt load on the company, the product sales of Afrezza and, ultimately, how the company was going to recapitalize,” Castagna said. Debt load When Mannkind reported a net loss of $22.7 million and cash reserves of only $26.8 million for the second quarter of this year, it put the company at risk of violating the terms of its agreement with creditor Deerfield, which stipulates that reserves cannot fall below $20 million. But thanks to several recent equity swaps, Mannkind has paid back about 80 percent of the debt due over the next three years, according to Castagna. “We really reduced all our near-term obligations to allow us to financially run the company,” Castagna said. “The next question is, how do you do this with the stock price at $1.11?” With the company’s credit issues resolved for now, its deal with United Therapeutics appears to have encouraged investors. Shares shot up nearly 90 percent on Sept. 4 to close at $2.08 but slipped back to $1.73 as of Dec. 4. While the agreement provided new revenue opportunities and a much-needed cash infusion, there are reasons to be skeptical about its long-term benefits. In a Nov. 16 post, Osborne at Seeking Alpha wrote that a recent $1.2 billion licensing deal United Technologies signed with San Diego-based Arena Pharmaceuticals to launch a competing hypertension drug called Ralinepag could spell trouble for Mannkind. “That implied reality should get MannKind investors thinking,” he wrote. “Is it possible that (Mannkind’s treatment) is simply going to be a filler of the gap until Ralinepag gets through Phase 3 and approved (by the Food and Drug Administration)? In my opinion, that could be a very distinct possibility.” Still, the current situation is a far cry from where the company was when Castagna took over as chief executive in May 2017. Shares were trading at 50 cents following a 5-for-1 reverse stock split earlier that year. At the time, the company had $60 million in payments due within 12 months. It was spending between $15 million and $20 million a year on interest, which it has reduced to about $3 million a year, Castagna said. Instead of worrying about debt, Mannkind can now focus on launching the new treatment and ramping up sales of its mainstay drug Afreeza. “It’s really a good turnaround story – we brought Mannkind back from the brink of disappearing last summer,” he said.
