MannKind Corporation’s (MNKD) third quarter 2011 net loss of 31 cents per share was narrower than the Zacks Consensus Estimate of a loss of 32 cents and the year-ago loss of 40 cents per share. The narrower loss was attributable to lower operating expenses incurred during the reported quarter. MannKind did not report any revenues in the third quarter of 2011.
Operating costs were down 22.8% to $32.8 million in the reported quarter. Both research and development (R&D) expenses and selling, general and administrative (SG&A) expenses were on the downswing in the third quarter of 2011.
R&D spend in the reported quarter decreased 26% to $23.1 million. The reduction was primarily attributable to lower purchases of raw materials following the termination of the insulin supply deal with Merck’s (MRK) subsidiary Organon. MannKind received and paid the company for the final shipment of recombinant human insulin during the reported quarter.
We note that MannKind canceled its insulin supply deal following the receipt of the second complete response letter (CRL) from the US Food and Drug Administration (FDA) for Afrezza. The candidate is being developed for the treatment of type I and type II diabetes. During the third quarter, general and administrative (G&A) expenses declined 13.5% to $9.6 million.
The cost-cutting measures resorted to by MannKind following the uncertainty regarding the company’s inhaled insulin candidate Afrezza also led to the decline in operating expenses.
We remind investors that the first CRL for Afrezza was issued in March 2010. The agency accepted the company’s resubmitted new drug application in July 2010. The second CRL was issued in January this year.
While issuing the latest CRL, the FDA asked the company to conduct two phase III trials with Afrezza. One trial is earmarked for patients with type I diabetes and the other for type II diabetes patients. In August 2011, MannKind announced that it has confirmed with the FDA the design of the clinical trials. The company intends to initiate the two studies shortly and complete them by the end of 2012 and subsequently seek approval from the FDA.
We believe that the earnings report is a non-event for the company as investor focus will be on the fate of Afrezza going forward.
Our Recommendation
We have a Neutral stance on MannKind in the long-run. The stock carries a Zacks #3 Rank (Hold rating) in the short-run.
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