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Description of business and basis of presentation | 9 Months Ended
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Sep. 30, 2012
Description of business and basis of presentation [Abstract] |
Description of business and basis of presentation | 1. Description of business and basis of presentation The accompanying unaudited condensed consolidated financial statements of MannKind Corporation and its subsidiaries (the “Company”), have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. These statements should be read in conjunction with the financial statements and notes thereto included in the Company’s latest audited annual financial statements. The audited statements for the year ended December 31, 2011 (which includes disclosures regarding the Company’s ability to continue as a going concern) are included in the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2011 filed with the SEC on March 15, 2012 (the “Annual Report”). In the opinion of management, all adjustments, consisting only of normal, recurring adjustments, considered necessary for a fair presentation of the results of these interim periods have been included. The results of operations for the nine months ended September 30, 2012 may not be indicative of the results that may be expected for the full year. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates or assumptions. The more significant estimates reflected in these accompanying financial statements involve assessing long-lived assets for impairment, accrued expenses, the valuation of stock-based compensation and the determination of the provision for income taxes and corresponding deferred tax assets and liabilities and any valuation allowance recorded against net deferred tax assets. Business — The Company is a biopharmaceutical company focused on the discovery and development of therapeutic products for diseases such as diabetes and cancer. The Company’s lead product candidate, AFREZZA (insulin human [rDNA origin]) inhalation powder, is an ultra rapid-acting insulin therapy in late-stage clinical investigation for the treatment of adults with type 1 or type 2 diabetes for the control of hyperglycemia. AFREZZA consists of the Company’s proprietary Technosphere particles onto which insulin molecules are loaded. These loaded particles are then aerosolized and inhaled deep into the lung using the Company’s AFREZZA inhaler. Basis of Presentation — The Company is considered to be in the development stage as its primary activities since incorporation have been establishing its facilities, recruiting personnel, conducting research and development, business development, business and financial planning, and raising capital. It is costly to develop therapeutic products and conduct clinical trials for these products. Since its inception through September 30, 2012 the Company has reported accumulated net losses of $2.1 billion, which include a goodwill impairment charge of $151.4 million, and cumulative negative cash flow from operations of $1.6 billion. At September 30, 2012, the Company’s capital resources consisted of cash, cash equivalents, and a certificate of deposit of $2.1 million and $21.9 million of available borrowings under a revolving loan agreement with an entity controlled by the Company’s principal stockholder (see Note 11 — Related-party arrangements). In October 2012, pursuant to a previously filed Form S-3 Registration Statement (“Shelf Registration”), which was declared effective by the SEC on September 24, 2012, the Company sold in an underwritten public offering 40,000,000 shares of its common stock, together with warrants to purchase up to 30,000,000 shares of the Company’s common stock. In addition, the Company sold pursuant to the full exercise of an over-allotment option granted to the underwriters, an additional 6,000,000 shares of common stock, together with warrants to purchase up to an aggregate of 4,500,000 shares of common stock. Net proceeds from this offering were approximately $86.0 million (after deducting discounts and commissions to the underwriters and offering expenses), excluding any future proceeds from the exercise of the warrants. (see Note 14 — Subsequent Events). Based upon the Company’s current expectations, management believes that the Company’s existing capital resources in combination with proceeds received in October 2012 from the underwritten public offering, will enable it to continue planned operations at least into the third quarter of 2013. However, the Company cannot provide assurances that its plans will not change or that changed circumstances will not result in the depletion of its capital resources more rapidly than it currently anticipates. The Company will need to raise additional capital, whether through the sale of equity or debt securities, a strategic business collaboration with a pharmaceutical company, the establishment of other funding facilities, licensing arrangements, assets sales or other means, or an increase in the borrowings available under the loan arrangement with its related party, in order to continue the development and commercialization of AFREZZA and other product candidates and to support its other ongoing activities. This raises substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of these uncertainties. Fair Value of Financial Instruments — The carrying amounts of financial instruments, which include cash equivalents, available-for-sale securities, a certificate of deposit, and accounts payable, approximate their fair values due to their relatively short maturities. The fair value of the note payable to related party cannot be reasonably estimated as the Company would not be able to obtain a similar credit arrangement in the current economic environment. Cash equivalents consist of highly liquid investments, with original or remaining maturities of 90 days or less at the time of purchase, that are readily convertible into cash. As of September 30, 2012 and December 31, 2011, the Company held $1.8 million and $2.7 million, respectively of cash and cash equivalents, consisting primarily of money market funds and the remaining funds in non-interest bearing checking accounts. The fair value of these money market funds was determined by using quoted prices for identical investments in an active market (Level 1 in the fair value hierarchy). The Company’s available-for-sale securities consisted of a common stock investment which the Company had determined to be other than temporarily impaired and had recorded a $117,000 realized loss in the quarter ended March 31, 2012. The certificate of deposit, having a maturity greater than 90 days, is held as collateral for the Company’s commercial credit card programs. The carrying value of the certificate of deposit approximates fair value based on quoted prices for similar instruments in an active market (Level 2 in the fair value hierarchy) and the common stock investment is stated at fair value based on quoted prices in an active market (Level 1 in the fair value hierarchy). As of September 30, 2012, the Company had a certificate of deposit of $350,000. As of December 31, 2011, the Company had available-for-sale securities and a certificate of deposit of $515,000. The following is a summary of the carrying values and estimated fair values of the Company’s senior convertible notes due in 2013 and 2015 (in millions).
|  | September 30, 2012 |  |  | December 31, 2011 |
|  | Carrying value |  |  | Estimated fair value |  |  | Carrying value |  |  | Estimated fair value |
Notes due 2013 |  | $ | 114.3 |  |  | $ | 70.8 |  |  | $ | 113.9 |  |  | $ | 61.0 |
Notes due 2015 |  | $ | 97.4 |  |  | $ | 57.8 |  |  | $ | 96.8 |  |  | $ | 60.8 |
The estimated fair value of the senior convertible notes due 2013 was calculated based on quoted prices in an active market (Level 1 in the fair value hierarchy). The estimated fair value of the senior convertible notes due 2015 was calculated based on model derived valuations whose inputs were observable, such as the Company’s stock price, and non-observable, such as the Company’s long-term historical volatility (Level 3 in the fair value hierarchy). As there is no current observable market for the senior convertible notes due 2015, the Company determined the estimated fair value using a convertible bond valuation model within a lattice framework. The convertible bond valuation model combined expected cash outflows with market-based assumptions regarding risk-adjusted yields, stock price volatility and recent price quotes and trading information regarding Company issued debt instruments and shares of common stock into which the notes are convertible. The estimated fair value of the Mann Purchase Agreement was based on a forward purchase contract valuation (Level 3 in the fair value hierarchy). See Note 8- Common and preferred stock for further discussion. The following roll-forward provides a summary of changes in fair value of the Company’s Level 3 forward purchase contract (in thousands):
|  | Three months end September 30, 2012 |  |  | Nine months ended September 30, 2012 |
Beginning Balance |  | $ | — |  |  | $ | — |
Issuance |  |  | — |  |  |  | 1,080 |
Adjustments to fair value included in other income (expense) |  |  | — |  |  |  | 12,011 |
Transfers to additional paid-in-capital |  |  | — |  |  |  | (13,091 | )
Ending Balance |  | $ | — |  |  | $ | — |
Recently Issued Accounting Standards — In June 2011, the FASB issued Accounting Standards Update No. 2011-05 (“ASU 2011-05”) for Comprehensive Income (Topic 220): “Presentation of Comprehensive Income”. This update improves the comparability, consistency and transparency of financial reporting and increases the prominence of items reported in other comprehensive income. This update is effective for interim and annual periods beginning after December 15, 2011. The Company has adopted all current required provisions of ASU 2011-05 on a retrospective basis. In May 2011, the FASB issued Accounting Standards Update No. 2011-04 (“ASU 2011-04”) for Fair Value Measurement (Topic 820): “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” This update addresses how to measure fair value and requires new disclosures about fair value measurements. The amendments in this update are effective for interim and annual periods beginning after December 15, 2011. The Company has adopted all current required provisions of ASU 2011-04.

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