MannKind Corporation (NASDAQ: MNKD) is having a rough time in the market for the second day in a row. Yesterday morning, the company announced a proposed direct offering of common stock that led to fear of dillution among investors. Unfortunately, this led to declines that are continuing today. Of course, our partners at Trade Ideas were the first to alert us to the losses. At the moment (10:02), MNKD is trading at $5.06 per share after a loss of $0.41 per share (7.50%) thus far today.
MNKD Proposes Direct Offering
As mentioned above, MannKind is having a rough day in the market today for the second day in a row after the company announced that it has entered into a definitive agreement with certain institutional investors as well as other investors surrounding a registered direct offering. In the press release that was offered up yesterday morning, the company said that it intends to sell 10,166,600 shares of common stock at an offering price of $6.00 per share. As a result, the company expects to bring in $61 million in gross proceeds from the offering.
Why This Is Concerning To Investors
At the end of the day, any offering where additional shares are generated and sold increases the share count on the company, ultimately leading to dillution. Think about MNKD as a big pie, with each share holder having a piece of that pie. Well, when more than 10 million new pieces of pie are cut, the pieces that have already been given to shareholders become smaller. That’s exactly why we’re seeing declines following the announcement of the offering.
Why This Offering Shouldn’t Be So Concerning
At first glance, dillution seems like it should be a major concern. However, in this particular case, there shouldn’t be much for investors to be concerned about. Sure, no one wants a smaller piece of the pie, but if you dig into what MNKD has going on, it becomes pretty clear that the company has a need for funding. At the end of the day, Afrezza sales have been lackluster since the product was approved by the FDA. Recently, the company received approval for a label change that many, including myself, believe will increase sales volume as well as refill volume on the prescriptions.
However, in order to take full advantage of the label change, the company is going to need to go on a strong sales push. Advertising, sales representatives, logistics, and every other piece of the sales process costs money. Unfortunately, MNKD simply didn’t have that money. So, the offering is a way to drive the funding that will allow the company to grow.
How The Label Changes Will Likely Lead To Increased Sales
As mentioned above, the FDA recently approved label changes surrounding Afrezza that many believe will lead to increased sales and refills. So, how will these changes help? Well, it’s simple. Ultimately, the label changes provide clarity to both prescribers and users of the treatment. The new label includes detailed instructions for prescribers and patients alike. They even go into what the patient is expected to feel with regard to different doses. This ultimately takes the guess work out of MannKind’s mealtime insulin, making it a much more prescriber/user friendly product. As a result, we can expect to see stronger sales volume, driving further revenue for the company and its investors.
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What We’ll Be Watching For Ahead
Moving forward, the CNA Finance team will continue to keep a close eye on MNKD. In particular, we’re interested in watching the sales volume of Afrezza following the approval of the label changes. Considering this approval, and the increase in sales it’s likely to lead to, we believe that recent declines as the result of the offering will likely prove to be an opportunity to get into the coming gains at a steep discount. Nonetheless, we’ll continue to follow the story closely and bring the news to you as it breaks!
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