Burning cash, MannKind is raising more money.

The Valencia biopharmaceutical developer MannKind Corp. plans to raise as much as $400 million in part to help fund Technosphere, a cornerstone product that has been in development for more than a decade.

MannKind is selling 17.5 million shares of stock and $100 million aggregate principal in senior convertible notes in separate public offerings.

The offerings are not contingent upon each other.

The company said underwriters including JPMorgan Securities and Merrill Lynch plan to stockpile up to 8.8 million shares and $50 million of notes for sale to MannKind founder, CEO and principal shareholder Alfred Mann.

Dick Anderson, vice president and chief financial officer for MannKind, said he could not talk about the funding, but SEC documents show the drug maker intends to use the money from the sale to fund research and development as well as additional clinical studies of Technosphere, an inhaleable insulin system.

The highly anticipated Technosphere, seen as a major breakthrough to address diabetes, recently moved into phase three trials in the U.S., Europe and Latin America.

The drug has been under development for since Mann founded MannKind to find cures for inflammatory and autoimmune diseases after a successful career in the pharmaceutical industry.

Millions in development

For much of that time, Technosphere was the only product in the MannKind pipeline, and the company has spent at least $650 million developing it--all without a significant return on the investment.

MannKind has since diversified somewhat, but the company has yet to bring any of its products to market.

In the most recent quarter, MannKind had no revenues and its losses are mounting.

For the period ended Sept. 30, the company's net loss almost doubled to $61 million, or $1.23 per diluted share from what the company shelled out in 2005-$31.7 million, or $0.73 per diluted share, largely reflecting the increase in the company's operating expenses.

Research and development likewise nearly doubled to $50.8 million, which the company credited to the additional clinical trials for Technosphere.

Such a rapid cash-burn rate has elicited some apprehension about MannKind, especially since several companies are developing similar insulin delivery products. Technosphere is also at least three years away from commercialization, which means the company is relying on it for both short- and long-term growth.

That's one reason why the new offerings are seen as a way for MannKind to staunch the cash burn from Technosphere until it hits the market, said Andrew Forman, a senior analyst with WR Hambrecht + Co. who covers the company.

"It's the Mount Everest of the pharmaceutical business," he said. "It's extra challenging, extra long and extra expensive."

Cash running out

With expenses around $50 million each quarter--and Technosphere entering the most expensive part of development, Forman said the company had to either partner with another developer or sell some shares.

"They would run out of cash if they didn't raise money," he said.

At the same time, the anticipation has made MannKind one of the highest stock price gainers among V-alley businesses. As of Nov. 27, the year-to-date increase in its share price was an impressive 54.4 percent.

The company, which announced the sale Nov. 29, will provide underwriters with a 30-day option to buy up to 2.6 million shares to cover any over-allotments for the stock offer and a 13-day option to buy up to $15 million in additional notes to cover over-allotments for the notes, which are due in 2013.

The announcement of the new offerings came the same day MannKind received regulatory approval to start human trials in the United States of its experimental cancer treatment, called MKC1106-PP.

The company said on Monday it could now begin early-stage clinical trials to test its safety and the ability of patients with solid tumors to tolerate it. Enrollment of participants is expected by the end of this year.

BY CHRIS COATES 

Staff Reporter