Here's Why MannKind Corporation Is Plunging

By Brian Feroldi Markets Fool.com

Image source: Getty Images.

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What happened

Shares of MannKind(NASDAQ: MNKD), a commercial-stage biopharma focused on inhaled insulin delivery, fell as much as 21% in early morning trading on Thursday after management provided investors with a series of updates.

So what

MannKind held a special conference call with investors after the markets closed on Wednesday to share more information about the ongoing commercial relaunch of the struggling Afrezza, which is the company's only product.Here's a quick review of the highlights:

  • The company is launching a new Titration Pack that will contain four, eight, and 12 unit cartridges. These new packs are expected to make it easier for physicians to prescribe Afrezza and offer patients greater dosing flexibility.
  • MannKind is transitioning its sales force away from a contract sales organization and is instead expanding its in-house team. The new team should be in the field within two weeks and will supposedly enable the company to reach 75% of rapid-acting insulin prescribers.
  • The company is expanding its nurse educator team in an effort to make it easier for patients to start on Afrezza and adhere to using the therapy.

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CEO Matthew Pfeffer expressed his excitement about these changes, noting:

"The new package, along with our new sales force expansion and nurse educator model, will enable us to make a stronger impact in how we market Afrezza without dramatically increasing our cost structure. Additionally, our Commercial organization has several direct-to-consumer and digital media initiatives deploying in the next few months that will further expand our promotional efforts"

Given all these positive changes, why are shares tanking today? That's likely owed to the news that MannKind will be holding a special meeting of stockholders on February 24th to vote on a potential one-for-three or one-for-ten reverse stock split. This vote is coming in response to a warning letter from the Nasdaq that stated that the company must get its stock price above $1 per share for 10 consecutive days between now March 13, otherwise it could face delisting.

CEO Pfeffer was adamant on the company's special investor call that delisting would be "disastrous for the company on many levels" which is why he stated that that "we cannot and we will not allow the company to be delisted."

Pfeffer was aware that this vote wouldn't be seen as a net-positive move for the company, so he did his best to calm shareholders fears on the call, stating:

"Now to be frank, reverse stock splits have come to a bad reputation, but it's for a very different reason than I think the situation we're facing today. Most companies that end up in that situation in an act to reverse stock split are under a lot of duress. Their stocks have been declining for a long time. The situations that cause that typically haven't gone away, and their stocks continues to decline, probably would have whether they did a reverse split or not. But certainly, they're doing it from a position of weakness. We're not in that situation. MannKind is doing this (if we, in fact, end up having to do it) from a position of strength."

Despite CEO Pfeffer's best efforts, traders are taking the news as a negative, hence why shares are plunging.

Now what

I happen to agree with CEO Pfeffer that being delistingfrom the Nasdaq would be a major blow, so I also think that a reverse stock split would be in the best interest of the company. However, I have to disagree with him that MannKind is performing this action "from a position of strength" given the company's long-term stock performance and dilution rate over the past few years.

MNKD data by YCharts

Sadly, traders do not appear to share this sentiment. I suspect many current shareholders are only investing in MannKind because they are attracted the company's sub-$1 share price, instead of the merits of the business itself.

Regardless of today's price action, the only thing that matters from here is how quickly the company can ramp up sales of Afrezza. Pulling the sales team in-house, expanding the clinical team, and launching its new Titration Pack all sound like smart moves to me. In addition, management previously indicated that these moves won't be as expensive as you'd think since the company will be using stock options as financial incentives to attract sales professionals.

Will these moves work and finally spur mass adoption of Afrezza? Only time will tell.

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Brian Feroldi has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.