MannKind Corp. (MNKD)

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$MNKD 3 Biotech Stocks with Low Liquidity Ratios -- Are They in Trouble?

Do low liquidity ratios point to danger ahead for these biotech stocks?



Biotech stocks don't come with labels that warn investors of potential dangers ahead. There is something that comes close, though.

The current ratio is a key metric that measures the liquidity of a company. It compares the company's current assets to its current liabilities to evaluate if there are enough resources to pay debts over the next 12 months. A current ratio less than one indicates that a company might encounter liquidity problems in the near future. Here are three biotech stocks with potentially dangerous liquidity ratios -- but are they really in trouble?

MannKind Corp (NASDAQ:MNKD)
After years of regulatory obstacles, MannKind finally got its inhaled insulin product Afrezza on the market. However, the process of getting to that point has left the biotech in what some might say is a precarious financial position. MannKind's current ratio is low at 0.42, which in theory means the company's assets are only sufficient to pay its debt for another five months or so.

I used the words "in theory" because, while MannKind's liquidity ratio is dangerously low, the company's actual liquidity looks somewhat better. The biggest factor in the biotech's low current ratio stems from a $185 million liability -- deferred payments from MannKind's collaboration with Sanofi. MannKind received large up-front payments from Sanofi, but the company hasn't recognized this revenue yet for accounting reasons, and is instead listing the amounts as liabilities for now.

MannKind's management said in May that there should be sufficient resources to fund operations for another 12 months, provided that the company can convert into stock or refinance convertible notes maturing in August. Still, the biotech might have to raise more money to remain in operation. Raising additional cash hasn't proven too difficult for MannKind in the past, though.