Buy, Sell, or Hold: MannKind

When considering any stock for your portfolio, don't be swayed by just the positives. Examine its pros and cons, and decide whether its possible upside outweighs its risks. Let's take a look at MannKind (Nasdaq: MNKD  ) today, and see why you might want to buy, sell, or hold it.

MannKind, with a market capitalization of about $376 million, is a biotechnology company known for developing therapies to treat diseases such as cancer and diabetes. It's not known for making many investors rich, though, as its stock has fallen nearly in half over the past year and has averaged annual losses of 30% over the past five years.

Still, with any stock, the future matters much more than the past.

Buy
So why might you buy into MannKind? Well, let's start with its business: biotechnology. Our global population now tops 7 billion people, and is still growing. Life expectancy is growing especially briskly in developing nations, where it was 41 years in the early 1950s and was recently 66 years. All these people living longer will have health issues during their lives, and especially in old age. Thus, new and better medications and treatments will be needed.

With any biotech company, you need to assess its pipeline, as up-and-coming products are the key to the future. MannKind's biggest expectations right now are in its inhalable insulin therapy, Afrezza. It's awaiting FDA approval now, and has actually been rejected in the past. It doesn't exactly bode well, either, that the FDA previously rejected another inhalable insulin product from Pfizer (NYSE: PFE  ) and that Eli Lilly (NYSE: LLY  ) and Novo Nordisk (NYSE: NVO  ) both dropped inhaled-insulin products in development. (Note that if Afrezza is approved, one or more of these companies might experience revived interest and a future competing product might be developed.)

Other than Afrezza, MannKind has a drug for melanoma in phase 2 trials, and a few other treatments in earlier stages. A drug to treat multiple myeloma sports some encouraging early results, though even if ultimately approved, it is still years from market.

Sell
Just as MannKind's industry is a reason to consider buying it, it's also a reason to consider selling it. The companies that can most help you sleep at night are companies that could be run by a ham sandwich -- and those don't include biotechs. It's a tough industry, where everything depends on gaining FDA approval for a new treatment after spending perhaps hundreds of millions of dollars to develop it. Alimera Sciences (Nasdaq: ALIM  ) , for example, was crushed when the FDA rejected its drug for diabetic macular edema. And even approval isn't enough, as prostate-cancer-treatment Provenge developer Dendreon discovered, when doctors ended up balking at Provenge's price.

Speaking of price, MannKind's stock price is another red flag -- at little more than $2 per share recently, it's firmly in penny-stock territory, known for extra-risky companies and many lost fortunes.

Then there are the company's financial statements. A glance at the last several years' worth of income statements shows a string of net losses (albeit shrinking losses) and no revenue. The share count has been rising, meaning that shareholders are seeing the value of their holdings shrink. Meanwhile, its debt level has been soaring, and its cash pile sits at very low levels -- about $56 million versus debt of $494 million. Thus, it looks like the company will likely have to take on even more debt or issue more shares, or strike some deal with another company in order to continue operating. It recently licensed its preclinical BTK (Bruton's tyrosine kinase) program to Tolero Pharmaceuticals, for example.

The company has lots of detractors, too -- its short interest has been rising, and recently some 19% of the stock's float had been sold short.

Hold
Given the reasons to buy or sell MannKind, it's not unreasonable to decide to just hold off. You might wait for actual revenue to start rolling -- which is most dependent on Afrezza approval in the near-future, and net earnings instead of net losses. You might also be tempted to look toward other biotechs with a healthier balance sheet. This is a risky space to begin with, but a limited amount of cash to maneuver with only ups the risks.

The verdict
I think I'll be holding off on MannKind, at least for now. It may well perform spectacularly in the coming years, but there are plenty of compelling stocks out there with more certain futures. Still, everyone's investment calculations are different; do your own digging and see what you think.

If you're looking for investments with huge potential, check out our special free report, "Discover the Next Rule-Breaking Multibagger." It profiles a promising stock in the health-care arena -- one with actual revenue.

Longtime Fool contributor Selena Maranjian, whom you can follow on Twitter, holds no position in any company mentioned. Click here to see her holdings and a short bio. The Motley Fool owns shares of Dendreon. Motley Fool newsletter services have recommended buying shares of Pfizer. The Motley Fool has a disclosure policy.

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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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 June 29, 2012, at 4:21 PM, WCoastGuynCA wrote:

    Mannkind currently has warrants outstanding that would convert to about 23,000,000 shares at a conversion price of $2.40. Several months ago the company's shareholders voted to increase the number of authorized shares by 100,000,000. I don't doubt that the company will be able to raise enough cash to get it to the F.D.A.'s decison date for its diabetes drug, Afreeza, which is expected to be in the third quarter of 2013. Obviously the unknown is how many additional shares of Mannkind will be sold in the next secondary and at what price. Trying to time the bottom is always a difficult task.

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10/24/2014 3:59 PM
MNKD $5.73 Up +0.08 +1.42%
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LLY $66.05 Up +1.70 +2.64%
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