Mehta Biotech Capital: Week 13 Update

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The markets took a rapid turn lower this week, which should come as no surprise to Mehta Biotech Capital subscribers. The breather comes as the S&P 500 nearly recouped all of its losses from August and September, now just shy of all-time highs at 2150.

In the wake of earnings and abstracts from the American Society of Hematology’s annual meeting last Thursday, there are some exciting developments ahead. On Monday morning, ASH’s six late-breaking abstracts will be released publicly. The late-breaking selection process is specifically for abstracts that highlight “novel and substantive studies of high impact".

One unique event caught our interest this week: a financing from the beleaguered insulin developer, Mannkind Corp. (MNKD). Mannkind trades on the NASDAQ, and has for some time, but last month the company listed dually on the Tel Aviv Stock Exchange (TASE). At first blush, it seems like a non-event. But in reality it’s some creative financial engineering on the part of Mannkind – and some savvy investment bankers, undoubtedly – as Mannkind’s TASE listing means it will be included in a number of indices that track equities on the TASE. That has allowed Mannkind to offer common stock directly to funds that track these indexes in Israel. Rather than having them buy the stock on the open market, the company offered to issue stock directly at a 3% discount to the open market price. Mannkind confirmed that it sold 13.85 million shares of common stock at $2.61 per share Thursday, for gross proceeds of $36 million before discounts.

The capital infusion is critical to the company. Mannkind ended the third quarter with cash and equivalents of $32.9 million, and $25 million of this is restricted under an existing facility with Deerfield. The company spends $15 – $20 million quarterly, meaning MNKD was running on fumes and still only has cash on hand for 2-3 quarters of operations. The company has $30.1 million available to borrow under an amended loan arrangement with founder Al Mann (The Mann Group), and $37.5 million available through an at-the-market sales facility; Mannkind raised $12 million from this facility in the third quarter. Assuming they continue to do the same, the ATM will be gone by mid-2016.

Perhaps the company can make it through 2016, but the situation looks increasingly dire for Mannkind. Sales of Afrezza, the company’s inhaled insulin, are barely growing at Sanofi (SNY), and Mannkind’s portion of the losses until the product reaches break-even continue to grow, now at $43.7 million. Contractually, Sanofi can only bail on the Afrezza agreement with the new year, January 1.

Two other US-listed biotech companies have dual-listed in the last few months: BioTime (BTX) and Navidea Biosciences (NAVB). As with Mannkind, they’re also two of the most heavily shorted stocks in the sector.

On Friday just before the close, abstracts from yet another medical conference went public; the San Antonio Breast Cancer Symposium runs December 8 – 12. Two names worth tracking through the event: Oncothyreon (ONTY) and Puma Biotech (PBYI) for their respective HER2 inhibitors, ONT-380 and neratinib. Though their featured abstracts held little new information (expect more at the conference next month), the rub with neratinib has been a deleterious rate of diarrhea in patients receiving the drug. ONT-380 has yet to generate Grade 3 diarrhea, though -380 is still in phase 1/2 development, well behind neratinib. Mehta Biotech Capital is positioned to profit from its position in both equities as a result of this “hidden” catalyst.

You can learn more about Mehta Biotech Capital here: