This Just In: Upgrades and Downgrades

At The Motley Fool, we poke plenty of fun at Wall Street analysts and their endless cycle of upgrades, downgrades, and "initiating coverage at neutral." Today, we'll show you whether those bigwigs actually know what they're talking about. To help, we've enlisted Motley Fool CAPS to track the long-term performance of Wall Street's best and worst.

And speaking of the best ...
Is MannKind (Nasdaq: MNKD  ) the best biotech investing idea ever? If you believe the buy recommendation that emerged from life sciences equity research firm  Brinson Patrick yesterday, it almost certainly is. Emphasis on "if you believe ..."

According to Brinson, you see, inhalable insulin firm MannKind is a potential triple in the making. A stock destined to hit $6 in under a year, selling for just two bucks and change today. According to StreetInsider.com, which reported the rating, Brinson believes that MannKind's Afrezza drug, "currently in two Phase 3 pivotal trials with their handheld drug delivery device called Dreamboat," addresses "a $33 billion worldwide branded diabetes market opportunity," and could capture $1 billion in sales by 2016.

Is it right?

Let's go to the tape
A billion in sales. Huh. That's quite a tall tale Brinson's telling. So far, the drugmaking world has seen three companies -- Eli Lilly (NYSE: LLY  ) , Novo Nordisk (NYSE: NVO  ) , and Pfizer (NYSE: PFE  ) -- attempt to create a market for inhalable insulin. All three failed at some point in the process. Yet according to Brinson, MannKind's not only going to succeed where everyone else failed, and get its drug approved.

Brinson's saying that from a near-standing start of just $35,000 in annual revenues, MannKind's going to take off and begin compounding revenue at a rate of 1,300%  (no, I didn't misplace a decimal) over the next four years. That's ... impressive.

Fun with numbers
Just for the fun of it, let's consider what this means to MannKind shareholders. It means that at just a $440 million market cap today, MannKind is selling for a "price-to-2016 putative sales ratio" (yes, I just made that up) of less than 0.5. For comparison, based on 2016 consensus sales numbers, Lilly, Pfizer, and Novo Nordisk  are respectively selling for P/2016S ratios of 2.5, 3.2, and 4.6. Dendreon (Nasdaq: DNDN  ) , a company closer to MannKind in terms of its prospects for profitability, and a former fast-growing biotech that analysts were -- until recently -- also predicting would one day do $1 billion in annual sales, today carries a P/S ratio of just 1.5.

Needless to say, none of these companies is growing sales and earnings at anywhere near 1,300%.

Yet I ask you: If you agree with Brinson that MannKind is going to grow sales much faster than its rivals, does it make sense that these rivals would command price-to-sales ratios higher than MannKind's?

I think not.

Back to reality
It's worth pointing out of course, that basically no one else in the world is predicting anything like the sort of sales numbers that Brinson Patrick relies on in making its MannKind endorsement. To the contrary, the consensus of even MannKind's most optimistic backers on Wall Street is that the company might make $333 million in sales in 2016. That's barely a third  of what Brinson is predicting.

So what, an investor may wonder, is Brinson Patrick thinking when it makes such an outlandish claim? If I might be so bold, I'll try to sum up their thinking thusly: Up until January 2012, there was no such thing as "Brinson Patrick" equity research. While its parent investment bank has been in business for 15 years  or so, Brinson Patrick's research division literally just set up shop  this year, and has yet to make a name for itself among individual investors. And what's the best way to make that name?

Well, one way might be by running out on a limb and recommending a moonshot stock, and guessing so high on its target price that, if MannKind hits it, Brinson will be the only analysts on Wall Street who called it right. They'll be the "smartest guys in the room," almost by default. On the flip side, if turns out that Brinson's wrong, well ... they were a no-name shop to begin with. What did they have to lose?

Other than your money, of course.

Still down around 90% from its highs less than a decade ago, there's been no giant leap for MannKind shareholders. The debate rages over whether the company's revolutionary inhalable insulin, slated to go in front of the FDA next year, will be a complete flop or a massive blockbuster success. In this brand-new premium report on MannKind, we outline every key topic investors have to know with this risky stock. It also comes with a full year of analyst updates to keep you covered as key news develops, so don't miss out -- simply click here now to claim your copy today.


Read/Post Comments (5) | Recommend This Article (5)

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 December 05, 2012, at 12:43 PM, tcalea wrote:

    how about telling me why the inhalable form wont be successful such as mechanism of action, ease of use....you know, the things that they say make it different from Pfizer and the other BP's?

    Stats are great......but the important point is what makes it different. Or is this proprietary information top secret stuff?

  • Report this Comment On December 06, 2012, at 5:36 AM, dobbst wrote:

    I can't tell whether this article is a hit-piece or just a sales pitch for the "premium report."

    Anybody that does a very small amount of DD can quickly see why the other insulin inhalers have failed. They were very large, hard to use and less effective than injections. Go ahead and google image the failed attempts of Eli, Pfizer and Nordisk and then compare them to Mannkind's dreamboat.

    Just because some of the early designs were flops does not mean that the technology cannot be improved upon. For an example, compare the early asthma inhalers (huge, difficult to use and less effective) to the design that is in use today.

    The diabetes market has been ready for this much needed alternative to injections for some time now. The only question was whether or not Mannkind could financially make it to their 2013 FDA decision, which was recently made possible due to a secondary offering.

    At this point, Mannkind should have no problem soaring past the $6 mark, leading into the FDA decision.

  • Report this Comment On December 06, 2012, at 7:56 AM, ProphetOfProfits wrote:

    I tend to consider the article as a (s)hit piece, an attempt of the shorts to stop MNKD's mini-run. Here is one good example (starting with a quote from the article):

    Quote: "... near-standing start of just $35,000 in annual revenues, MannKind's going to take off and begin compounding revenue at a rate of 1,300%..."

    I am not sure that the example above has ANY meaning. MNKD do not have an approved drug thus the current revenue, if any, is merely noise in the big picture. ONLY when Affrezza is approved, revenue GROWTH should be an important subject for discussion. Right now it is meaningless.

    Poor attempt by the author.

    Just my 2c

    (long MNKD, speculative play)

  • Report this Comment On December 06, 2012, at 7:59 AM, mrmarkaallen wrote:

    Afrezza is an ultra fast acting insulin that unlike injectables does not cause weight gain and is superior with fewer hyper glycemic events. Here is the kicker, you don't have to stab yourself before every meal. Titration is also not needed as dosages are fixed based on the patient.

    The new inhaler looks like a whistle and is disposable and although it requires less powder than the original and showed bio equivalence the FDA decided to kick it down the road.

    So I disagree with your analysis and predict Afrezza will achieve multi billion dollar sales within three years of approval.

  • Report this Comment On December 06, 2012, at 12:30 PM, WCoastGuynCA wrote:

    Mannkind is expected to announce on 12/20 that the number of authorized shares has been increased from 350,000,000 to 550,000,000.

    That news combined with the end of the year tax loss selling will probably drop the share price back to the $1.70 range.

    If you're considering buying a few shares I suggest you wait until January.

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