Loss at MNKD Wider than Expected - Analyst Blog

MannKind Corporation's (MNKD) third quarter 2010 net loss of 40 cents per share was wider than the Zacks Consensus Estimate of a loss of 39 cents. The company had suffered a loss of 42 cents per share in the year-ago quarter.

The narrower year-over-year loss was attributable to lower expenses incurred in the reported quarter on the inhaled insulin candidate Afrezza. The candidate is being developed for treating type I and type II diabetes. MannKind failed to generate any revenues in the reported quarter like a year ago.

Operating expenses slipped marginally in the reported quarter to $42.5 million from $42.8 million a year ago. Research and development (R&D) spend in the quarter climbed 3% to $31.4 million mainly because of increased raw material purchase. The rise was partially offset by reduced spending for developing Afrezza following the submission of a New Drug Application (NDA) in March 2009.

General and administrative (G&A) expenses declined approximately 10% in the reported quarter to $11.1 million. The decline in G&A expenses was primarily attributable to the lower salary-related costs resulting from headcount reduction in April 2009 coupled with the non-recurrence of professional fees related to MannKind's acquisition of Pfizer's (PFE) insulin factory at Frankfurt in June 2009.

The primary candidate at MannKind is Afrezza for which the company is seeking approval from the US Food and Drug Administration (FDA). Earlier in the year, the US FDA accepted MannKind's response to the complete response letter (CRL) issued by the agency on Afrezza.

The agency informed the company that the resubmission will be treated as a class II review. Consequently, a decision from the FDA should be out by December 29, 2010.

Our Take and Recommendation

We believe that the approval of Afrezza is crucial for MannKind.  Although Afrezza offers distinct advantages over the traditional needle-based insulin therapy that currently dominates the market, the path to approval is not easy.

Furthermore, with no product on the market and no revenues, we are very concerned about the company's financial position. The company believes that its funds and the available credit facility will enable it to conduct operations through the third quarter of 2011.

Even though the company carries a Zacks #2 Rank (short-term Buy rating) in the short run, we are more cautious in the long run and have a Neutral view on the stock.