MNKD Shelf Registration Should Fund Afrezza to Market; Shares Decline in Expectation of Dilution

On news Tuesday of a $500M shelf registration, MannKind Corp. (NASDAQ:MNKD) is down 7% just after the market’s open. The S-3 registration allows the company to release shares in the form of warrants, common stock, preferred stock, and debt securities for three years without formally submitting all registration-related procedures each time. Investors are taking the offering negatively as today’s news allows the company to dilute shareholders extensively ($500M if necessary) without warning over the next three years. And with a market capitalization just over $500M, shareholders stand to lose significant value should the registration be fully exercised. The company says that the offering will help to fund development of the company’s lead candidate Afrezza, a treatment for hyperglycemia in patients with Type 1 and 2 diabetes.  The drug has had significant setbacks since its original NDA in 2009. In January of 2011, the FDA issued a Complete Response Letter to MannKind’s New Drug Application for Afrezza, requesting substantial additional data and trials involving the drug. Those trials are expected to finish in early 2013, and MNKD plans to resubmit the NDA in the first half of 2013; if approved, Afrezza won’t be available until 2014.

The registration may mean that MannKind is having difficulty partnering the product and could be forced to market Afrezza alone; the company has left significant room for a self-lead launch.  Investors should keep a close eye on MNKD’s financials moving forward; low cash levels will indicate financing through one of the above avenues, hurting shareholders and MNKD’s valuation.