MannKind announced two funding deals over the past week.  Below is my analysis of the situation.  My net recommendation is for current shareholders to stay invested in Mannkind and those who are considering it to wait a few weeks before investing.  This recent round of financing will allow Mannkind to stay solvent for a few quarters in 2011 and thus negotiate harder with a partner...it also probably means we won't hear about a partnership before the approval.


What does Mannkind Get 

• $115 million cash from Bank of America / Merill Lynch in the form of convertible debt
• 8% discounted shares to Seaside 88 (discount to previous two week average share price if & only if average share price > $6.50)
• variable cash infusion from Seaside every two weeks equivalent to 700,000 shares at 8% discount on 2 weeks starting end of September
• moving average iff price > $6.50. (at $6.50, that is $4.55M every two weeks or $9.1M every month for first 3 months until FDA announcement, or $27.3M/quarter until FDA announcement)
• loan forgiveness for loans from Al Mann (at each share distribution every two weeks, same terms as Seaside but without discount)
• Option to cancel deal with Seaside any time they would like...it is not very likely that this option will get exercised...the only time it would is if Mannkind receives a large up-front payment from a partner and the partner would not like to get diluted after partnership and thus forces Mannkind to exercise this option as part of the deal
• Net: $142M by end of 2010, and an additional $81.9 in 2011 (this last part is not so relevant since if there is no approval and hence no partnership, it is unlikely that the share price will remain above $6.50 and hence that Seaside will invest any additional money).  This $142m will fund 3.5 quarters of operations assuming status quo on burn rate...or ensure the company has funds into Q1 2012. In the event that approval occurs as well as partnership, than they won't have as many cash issues and the additional funding will be a part of a larger funding pool (and this analysis won't be so relevant...)

What does Mannkind Give?

• Convertible Notes (unpublicized convertion price)
• 8,000,000 stocks also loaned to BoA for the purpose of shorting (allows them to Hedge their risk)
• 18,200,000 shares to Al Mann in 700,000 share chucks every two weeks, min price $6.50 (I am assuming that Al Mann has the same lower limit option for the purchase as Seaside)
• 18,200,000 shares to Seaside in 700,000 share chucks every two weeks, min price $6.50 

Other Notable Info:

• Mannkind's burn rate is between $30M-$40M a quarter
• Mannkind has cash until end of Q1 2011
• Dec 29 is the FDA announcment date regarding the NDA for Afressa

Net Outcomes:
Bank of America / Merill Lynch

risk	nada ... shorted shares will probably cover their loan amount
benefit	interest payments at a minimum from MannKind, upside - they succeed, and get a big payout when they convert (probably around 2015)

Al Mann

risk	nada...he already gave the loan to MannKind...he is not giving any more cash. there is less uncertainty now than there was when he made the loan. in any case, if the company goes belly up, its unlikely, he will recover any significant amount of money from the loan
benefit	great upside if the stock goes up prevents Al Mann from getting diluted without spending money for the additional shares

Seaside

risk	a significant portion of their investment if MannKind does not succeed.
benefit	great if the FDA approves and they get to continue to buy at a discount for 8 months after the announcement.  If the announcement is positive, they get one week of a bigger than 8% discount on the price (because it is a 2 week moving average...and won't have moved much when the stock jumps on positive news).

Other investors

risk

10% decline in stock price on day of second announcement if stock price doesn't recover.  potential additional decline in stock price due to additional short positions (50% increase in shares shorted from 16M to 24M) ~20% dilution (~70M shares outstanding...upto ~80M by end of year)...I am not counting 8 months of share purchases in 2011...as I hope that the FDA will approve the drug and stock price will jump...hence, the remaining 20M of additional shares will not result in reducing the size of the pie for other share holders

benefit

company stays afloat...Seaside cash infusion pays for most of Mannkind's cash burn company has better negotiating position with potential partners...hence, better deal terms, and greater upside

My guess as to the future
We know that Al Mann wants to make 10x (or more) on his investment in Mannkind...so he is driving a really hard line with partners...considering that he didn't raise this money when the share price was at $10 means that he mis-calculated the amount of time it would take for partnership.  The seaside deal is designed so that he is not diluted...which is a sign that he remains confident in Mannkind.   It also means that he is going to continue to drive a hard line with partners...and in order to get to where he wants to get to...it may mean that Mannkind won't get a huge upfront cash payment but will get to keep a larger percentage of sales than would typically happen.
Investing in Mannkind is a gamble...but given Al Mann's record and the fact that he does not want to be diluted and the previous FDA announcement which pretty much means that he will get approval at the end of 2010 I would recommend that you stay invested and if you are not invested wait a bit and then invest.  We may see some additional price drop in the stock in the short term as additional shares are shorted.

References

http://finance.yahoo.com/q/ks?s=MNKD+Key+Statistics

http://finance.yahoo.com/news/MannKind-shares-fall-with-new-apf-1884617978.html?x=0&.v=1

http://www.fool.com/investing/value/2010/08/17/make-a-financing-deal-and-lose-10-nice.aspx

http://blogs.barrons.com/stockstowatchtoday/2010/08/17/mannkind-drops-on-convert-deal-financing-efforts-fail-to-please/?mod=yahoobarrons

http://messages.finance.yahoo.com/Stocks_(A_to_Z)/Stocks_M/threadview?m=tm&bn=25210&tid=128271&mid=128271&tof=12&frt=2