How to Lose $114 Million in One Day

You've got to be a very trusting investor to buy shares in MannKind (Nasdaq: MNKD  ) . Apparently there are fewer of you after MannKind announced that the Food and Drug Administration rejected (for now) its inhaled insulin drug, Afrezza; on that news, shares dropped 25% yesterday.

Its largest investor still trusts the company, but that's because he's the company's namesake, CEO Alfred Mann. It's a good thing the guy's a billionaire, because his nearly 44 million shares lost more than $100 million in value yesterday.

Don't feel bad for the guy, though: It's his own fault. Back in January, Mann was hyping the drug, talking about how the company was discussing the label with the FDA. Since that's usually the last thing done before approval, investors had certain expectations that an approval was imminent.

Instead the FDA wants a couple of items addressed before it can sign off on the drug. Some are rather routine -- requests for updated safety information, for instance -- while others have investors questioning the likelihood of approval.

After seeing Pfizer (NYSE: PFE  ) and Nektar Therapeutics' (Nasdaq: NKTR  ) bulky inhaled insulin device, Exubera, go down in flames, MannKind realized that smaller was better. Its current device is smaller than Exubera, but MannKind has developed an even smaller device named Dreamboat that it would like to see approved.

The plan was to get the current device, MedTone, approved and then file a supplemental approval for Dreamboat. Now that the FDA has rejected the MedTone, at least for the moment, the new plan might be to just get the Dreamboat approved. However, it's unclear whether the FDA will let them go down that river. In the worst case scenario, MannKind would have to submit another New Drug Application (NDA), instead of responding to the questions raised on the old one, which would reset the clock to 10 months instead of six.

The bigger question hanging over MannKind is the FDA's request for "data that support the clinical utility of Afrezza." It sounds like the FDA wants to know who MannKind thinks should use the product. For most drugs, that's clear-cut: For instance, Dendreon's (Nasdaq: DNDN  ) Provenge was tested as a first-line treatment for advanced prostate cancer, so it'll be approved to treat those patients, while sanofi-aventis' (NYSE: SNY  ) cabazitaxel was tested in prostate cancer patients that had already failed Taxotere, so it'll be approved to treat that indication.

For Afrezza, it's a little bit unclear because there's already a good treatment for diabetics: injected insulin. MannKind would obviously like the drug approved for all insulin-requiring diabetics, but if the FDA were to slap a stricter label on the drug, such as it should only be used for diabetics who can't give themselves shots, that would be a mighty big blow to MannKind.

At this point, MannKind's best shot at getting investors' confidence back is to find a marketing partner. A drug company willing to put up cash and help MannKind weave its way through the regulatory pathway would sure relieve some anxiety. Of course that may be easier said than done with both Novo Nordisk (NYSE: NVO  ) and Eli Lilly (NYSE: LLY  ) having stopped their own inhaled insulin projects shortly after Exubera's blowup.

Alfred Mann says that negotiations with one potential partner are proceeding, but it may be that big pharma will just watch from the sidelines until MannKind succeeds on its own or becomes cheap enough to buy without as much financial risk.

Pfizer is a Motley Fool Inside Value pick. Novo Nordisk is a former Global Gains recommendation. Try any of our Foolish newsletters today, free for 30 days.

Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. The Fool has a disclosure policy.


Read/Post Comments (6) | Recommend This Article (14)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 16, 2010, at 3:34 PM, sratan wrote:

    FDA did not reject anything. You are creating FUD.

  • Report this Comment On March 16, 2010, at 3:39 PM, sratan wrote:

    Do you have to disclose your position on the stock? No? OK.

  • Report this Comment On March 16, 2010, at 3:42 PM, NHWeston102 wrote:

    Intended or not, this article raises an interesting question: what exactly is being "approved" here, the medicine or the administration of the medicine. My very limited understanding - and I'm eager to be corrected here - is that most of the "new" diabetes treatments debated here are slight variations on insulin. What is new is how it's administered - inhaled or intected four, three, two, once a day or a week or whatever. That suggests that Afrezza is being held up - at least in part - because it's sort of a "boutique" drug in the sense that [1] the FDA might want to restrict it to people who cannot use injectable methods and [b] its primary clientel would be people who could go on injecting the drug but would really just raher use Afrezza for the "boutique" reason they want to get the "needles and works" out of their lives.

    I "convenience" a legitimate reason to deny or restrict an otherwise safe treatment? Or maybe I'm just more tired at the end of a long day than I realized. Regards. NHWeston

  • Report this Comment On March 16, 2010, at 5:02 PM, TMFBiologyFool wrote:

    Sratan,

    You can call it what you will -- the FDA is nice and calls it a complete response letter -- but I'll continue to call them rejections. If you ask someone out on a date and they say, "some other time," that's a rejection. Might you still go out? Sure. Are you going out tonight? No.

    And my disclosure is in the by-line:

    Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article.

    (that's long and short in case you're wondering, and per Fool rules I won't be trading them for 10 days)

  • Report this Comment On March 17, 2010, at 12:34 AM, zBigD wrote:

    Management has done a horrible job of PR. Al Mann has done a horrible job of PR. Mann is a smart guy, and the president of Mannkind should be fired....TODAY...period..end of the line. Dont waist anymore time Al,... You're a loyal man.. and loyal to a fault. Fire him and move on. Or your dreamboat is going to sink, as your loyal investors move on down the river. Im 100,000 shares in for 18 months now, and im about to jump ship.

  • Report this Comment On March 20, 2010, at 6:07 PM, Rollerofthedice wrote:

    Why all the attention to this stock, and this price move? Look at the volatility over the past year and the recent move is not particularly unusual. On top of that, even with the recent dive, over the past year the stock has more than doubled!

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