Risks MannKind Investors Need to Know

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In the following roundtable discussion, our analysts discuss some of the risks facing biotech company MannKind (Nasdaq: MNKD).

With the stock still down around 80% 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.


Brenton Flynn: We're going to move on to MannKind. Max, what's the big overhang with this story?

Max Macaluso: It's a story I like. I think there are some positives of the company, but there are several overhangs that are really weighing on the stock, and they have for quite a while.

The first, of course, is FDA approval for its inhalable insulin, Afrezza. It's already faced two complete response letters from the FDA, which is never good news. The positive there is that it wasn't due to safety or poor efficacy. It was just that they wanted to change the type of inhaler used in the clinical trial. It went from the MedTone, which was a first-generation inhaler, to a much improved inhaler called the Dreamboat.

Now, after these two rejections they're in phase 3 trials for this new inhaler. That's the first overhang. Before you get your compound product on the market, it has to be approved. Along the way, they've had struggles with cash.

Fortunately, their CEO has been shoveling money into this very generously -- over a billion dollars at this point. Even last quarter, the company was down to a couple million in cash. The CEO swooped in and replenished the credit line there. I think Alfred Mann is really keeping the company afloat. I think he believes in his vision. We have to see if it translates to a reality.

That's the first overhang. The second, of course ...

David Williamson: You see, too, often when a company gets that CRL [complete response letter] and it has to run another clinical trial, it's sort of lost in the woods. Investors in our space love binary events. They love something with momentum. When a company is just running a long, large trial, people just abandon it, basically. They don't want to just park their cash.

Brenton: Yeah, it's dead money because there's not a catalyst coming.

David: I think that's sort of what MannKind is seeing.

Max: But of course there could be more momentum as the next decision nears.

David: Yeah, absolutely.

Max: But long-term, there's another overhang. We all know Exubera; Pfizer tried to commercialize it. It failed after just about a year, due to a few different reasons. Poor marketing was one that was cited as a reason. Pfizer ended up losing $2.8 billion.

MannKind really would benefit hugely by having a Big Pharma partner, but of course no one wants to have egg on their face. At the end of the day, pharma executives are people, and they don't want to lose their jobs. You don't want to make the same mistake that Pfizer made with Exubera, going after MannKind.

David: A $2 billion mistake would definitely cost you your job.

Max: Almost three.

Brenton: I was going to save this for Christmas, Max, but I actually got you an original Exubera inhaler to keep on your desk.

Max: Thank you very much.

Brenton: Yeah, that certainly can haunt investors, when you think about this. This is one of those concepts that's really new.

Max: It's fantastic. It's a very innovative product that could revolutionize the way mealtime insulin is given to patients. Right now, it's injected. An inhalable system would be a lot more convenient. Afrezza is a very small product.

I think it's a cool device. As a scientist, I think it's awesome, but as a shareholder, this is one of the riskiest stocks in the biotech space. If someone does want to invest in it, you could invest with a controlled risk, because you can only lose 100% of your investment.

The gains are questionable. It could be more than 100%, but ... the stock could go to zero, it could go to ...

David: The FDA has been tough on inhalable drugs in the past.

Max: Very tough, yeah.

David: That's another issue.

Brenton: Certainly. To your point, hedging risk, I haven't looked into the options market for MannKind and just how liquid it is, but there's obviously other ways to hedge your risk with biotech stocks. Owning the stock, maybe hedging your downside with some options, too.

Efficacy isn't necessarily the problem with Afrezza, right?

Max: No. As far as I've seen, no. We have to see the results of this latest trial with the new inhalable device, but so far it seems to be a safe device. They just have to make sure they got the trial right this time.

Brenton: Yeah. Looking at the end market here, correct me if I'm wrong, but Type 1 diabetes, required to have insulin, is a much smaller market, although as you progress through Type 2, many times patients are also prescribed.

Max: Right, but actually Afrezza is only a mealtime insulin. Patients who have Type 1 diabetes will need long-acting insulin and may need some mealtime insulin when they eat because they have a big influx of sugar during that time.

Brenton: I guess the question would be, is this the most attractive place to go? Obviously, it's a very speculative bet.

Max: Very.

Brenton: There's likely to be huge upside potential, but the Type 2 diabetes space is full of new drugs coming up, largely supported by Big Pharma, so you don't necessarily have that binary event element.

Max: Yeah, there are a lot of different ways to play the diabetes space. You have new oral drugs that are coming out, different classes. I think it's DLP-1, a new class of drugs?

Brenton: GLP-1

Max: Is it GLP-1?

Brenton: I don't know; I might be wrong. I don't know the acronym.

Anyway, you've got anything from a Novo Nordisk, which dominates and has been one of the best performing Big Pharma stocks...

David: It's pretty focused on diabetes, too, as a company.

Brenton: Yeah, a huge percentage of its revenues.

David: It's basically a pure play.

Brenton: It's essentially a pure play, absolutely, and it's got an element of insulin, it's got some of the Type 2 diabetes products as well. You can go that route if you want the safer ... you're obviously not going to see the multibagger potential there, but the bottom line is diabetes is a growing trend that's not going away. I've seen some incredible statistics on the number of people with Type 2 diabetes in countries like China, so there's huge emerging markets potential, in addition to just potential at home, here in the U.S. and in Europe.

Max: But, just to drive home the point, very risky.

Brenton: Absolutely.

Max: Very risky stock.

Brenton: Absolutely. Cool, guys. We're definitely going to do this again. More roundtables on this topic in particular, overhanging risks. Next up we're going to talk about Big Pharma, and then we're going to do a Wild Card round.

Definitely check back with the Fool as we do more of these "guys talking about stocks" type of discussions. Thanks for watching, and Fool on!

David: Fool on!

Read/Post Comments (2) | Recommend This Article (2)

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 January 06, 2013, at 2:45 PM, Slavski wrote:

    One company soon to create a revolution in diabetes treatment is Oramed Oharmaceuticals (ORMP,, working very hard and successfully on an oral insulin capsule. The company is scheduled to file an IND with the FDA for phase 2 clinical trials and to become listed on Nasdaq in early 2013. With a market cap of only 28 million and currently worth 0.32 OTC it is significantly further in oral insulin delivery than Novo Nordisk, which has allegedly spent 2 billion USD on developing oral insulin with little success.

  • Report this Comment On January 13, 2013, at 1:47 PM, TelsaRowe wrote:

    Talk about a risk, this guys betting $200K on mnkd

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