MannKind (MNKD): Shoring up the Balance Sheet by Selling Stock Comes with a Price


Shares of biotechnology company MannKind (NASDAQ:MNKD) are taking a hit – down nearly 25% as of this writing. The reason? MannKind announced this morning that it will be selling at least 14 million shares of its own stock to raise cash for general corporate purposes, including manufacturing expenses, clinical trial expenses, research and development expenses, sales and marketing expenses, general and administrative expenses, and other expenses associated with the commercialization of Afrezza, any other product candidate MannKind develops and MannKind’s Technosphere drug delivery platform.

Each share of common stock is being sold together with a common warrant to purchase one share of common stock at a combined effective price to the public of $2.00 per share. The warrants will be exercisable at a price of $2.38 per share beginning six months following the date of issuance and will expire six months thereafter. The shares of common stock and the warrants will be immediately separable and will be issued separately.

Added to its current 123.01 million shares outstanding, this offering promises to dilute existing shareholders by about 11%. Put another way, if you owned enough shares to control a 10% stake in MannKind before the dilution, then after the dilution you’d own only a 9.3% stake in the company — because while the number of shares you own hasn’t changed, the number of total shares in existence has grown.

Another reason investors may be selling off MannKind stock is the price at which these new shares are being offered. At $2.00 a share, the company is offering new stock for a price 16% below what its shares cost prior to the offering announcement.

On the other hand, these new shares won’t just raise the share count but they’ll also raise cash. MannKind expects the sale of these new shares to help shore up its balance sheet by generating as much as $28 million in new capital, excluding the proceeds, if any, from the exercise of the warrants.

Analyst Ratings

Wall Street is not rooting for the biotech stock’s success, earning a weak analyst consensus rating. TipRanks analytics exhibit MNKD as a Sell. Based on 4 analysts polled in the last 12 months, 3 rate MNKD a Sell, while only one recommends a Buy.