What's MannKind Really Worth?

Here's your one-question pop quiz of the day. Does MannKind (NASDAQ: MNKD  ) deserve a market cap of:

  1. $1.4 billion
  2. $1.7 billion
  3. $2.2 billion
  4. None of the above

What's the correct answer? It depends on whom you believe. Here are reasons any one of these answers could be right.

1. $1.4 billion

This is close to the market cap that Bank of America's Steve Byrne thinks MannKind is worth. He recently downgraded the stock from neutral to underperform and also lowered the price target from $8 per share to $5.

Why such pessimism? Byrne's action came after a survey of 75 doctors was conducted to determine their interest in Afrezza based upon MannKind's recently released phase 3 study results. The physicians took a more cautious stance about the inhaled insulin than in the past, leading Bank of America to presume that capturing market share could be more difficult than earlier thought.

2. $1.7 billion

Right now, the market is saying the answer is "2," give or take a little. To put that valuation in perspective, let's look at a company with a similar market cap: Nektar Therapeutics (NASDAQ: NKTR  ) , which has a market cap of more than $1.5 billion. This comparison is a little ironic, because Nektar years ago failed commercially with an inhaled insulin product, Exubera, along with partner Pfizer (NYSE: PFE  ) . That's the past, though, and there are plenty of reasons why Afrezza is superior to Exubera.

I think the mere fact that the market is placing a higher price tag on MannKind right now shows that many investors expect much more from Afrezza. MannKind has only one product, while Nektar counts 13 in clinical trials, six of which are in phase 3. MannKind doesn't yet have a revenue-generating product. Nektar does, with more than $96 million in revenue coming in over the last 12 months (although a significant portion of that revenue stemmed from collaborations with larger partners). 

There is definitely some level of optimism about Afrezza's chances already baked into MannKind's price.

3. $2.2 billion

If we look at analysts' estimates for where MannKind's value will be within a year, "3" looks to be about right. The mean one-year price target for the seven analysts surveyed by Thomson Reuters is $7.46 per share, which equates to a market cap just north of $2.2 billion.

Is this price target a stretch? Not really. MannKind traded above this level just a little over a month ago. A negative market reaction to generally positive phase 3 study results brought the stock down somewhat. It wouldn't be surprising for good news (like snagging a marquee commercialization partner or FDA approval) to lift shares to this level or even higher.

4. None of the above

MannKind bulls and bears could both easily go with this answer. The most pessimistic analyst, for example, set a price target of only $4 per share, reflecting a market cap of below $1.2 billion. The most optimistic analyst thinks MannKind will climb to $11 per share, which would put its market cap at nearly $3.3 billion.

At least one potential rival is already dismissing Afrezza to some extent. Novo Nordisk's (NYSE: NVO  ) CFO Jesper Brandgaard said recently that his company sees Afrezza as "solely a product you use for mealtime." Brandgaard noted that patients who use mealtime insulin often also need long-acting insulin, which would currently require an injection. Novo, by the way, also threw in the towel on its inhaled insulin product several years ago following Pfizer and Nektar's failure.

This view, though, focuses more on Afrezza's attraction as an inhaled insulin versus an injected insulin and doesn't really address what many would say is Afrezza's greatest strength: how well it works. Afrezza acts rapidly and mimics the normal functioning of a healthy pancreas relatively closely.

On the bullish side, investment firm Piper Jaffray thinks that Afrezza could hit peak annual sales of more than $2 billion, assuming approval in the U.S. and Europe. If this estimate is in the ballpark, MannKind could be worth a lot more than $2.2 billion in the future.

Best guess
To me, the safest answer for this quiz is "none of the above." I'm not sold on the idea that a survey of 75 doctors accurately represents the opinions of the the entire medical community. MannKind must get a partner to help commercialize Afrezza. If it gets a good one with a solid sales team in place for the diabetes market, my hunch is that doctors can be swayed to try Afrezza. I suspect that patients will like it if the doctors prescribe it. In this scenario, that $3.3 billion market cap from the most optimistic analyst will likely be blown away.

However, the key word in the above paragraph is "if." If MannKind doesn't land a partner with a sales team that can effectively educate physicians and if that physician survey was on target, I wouldn't be surprised to see the market cap drop even lower than $1.4 billion.

I think that MannKind will secure a solid partner, but none of us can be absolutely sure. I'm definitely not a bear on MannKind, because my view is that Afrezza holds tremendous potential. On the other hand, I'm not quite as gung ho as many of the company's most ardent supporters. Call me cautiously optimistic. My caution has overridden my optimism for now, though: I don't currently own any MannKind stock.

What do you think? Leave your thoughts in the comments section below. Anyone who makes a solid case for their answer, regardless of what it is, automatically gets an "A" on the quiz.

A really good answer
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Read/Post Comments (6) | 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 September 17, 2013, at 8:35 PM, sayhey44 wrote:

    Sometimes the smartest thing to do when facing a tough question like that posed above is to get some advice from an expert and not an analyst. Better yet follow what an expert in the field is doing. Al Mann is one of the leading experts in diabetes treatment. Mr. Mann made billions from his investment in Minimed which sold for an adjusted pps of over $190. Now Mr. Mann appears to believe Mannkind is bigger than Minimed and has invested about $1B of his own money into the company. Having an expert believe that much in a company seems to speak very loud.

  • Report this Comment On September 18, 2013, at 8:55 AM, 808mon wrote:

    Afrezza does not have to be better than injected insulin or replace long acting insulin. All it has to do is save people from having to inject themselves 3 times a day and they will have a fairly sizable market.

  • Report this Comment On September 18, 2013, at 9:46 AM, missjessiecat wrote:

    I love the risk/reward ratio of MNKD. Although there are still unanswered questions, which raise the risk, the potential rewards are enormous! It addresses one of the largest health issues in the world, thus the enormous opportunity. Today, the risk is $5.80 per share, but the potential upside is megabucks!

  • Report this Comment On September 18, 2013, at 10:28 AM, sanityrules wrote:

    It's essential that 'investors' are CAUTIOUS and REASONABLE when they decide to buy something. It's one thing to 'see the possibilities', but one has to invest with caution because its not a given.

    Watching folks in ARNA for the last year plus now. I have traded the stock as it gave, but I have not locked into the belief that it WILL be a huge winner as many have. And over the last year or so, many have rode it down, thinking it WILL turn around and be that winner they 'see'. MNKD is in the same 'league'. Its a great idea, has a lot of potential, but only with time, will we know how the 'vision' really played out. Again, its good to be cautious....

    disclaimer: watch the chart, it APPEARS to be finding a bottom, but it will only be confirmed by its rise from this level.

  • Report this Comment On September 18, 2013, at 10:35 AM, EducatedBet wrote:

    One aspect I don't ever see mentioned is a direct-to-consumer advertising campaign for Afrezza. I have to think that once diabetics see an advertisement for inhaled insulin they would be asking their doctors about it. How many doctors are going to resist letting their patients at least try Afrezza at that point? I wouldn't think many. Viagra, Cialis and countless other drugs with smaller total markets advertise direct to the consumer and sell billions. With direct to consumer advertising Afrezza could be a huge selling drug in little time.

  • Report this Comment On September 18, 2013, at 1:35 PM, JUDYREITZ wrote:

    I believe Afrezza is a life changing drug for many diabetics and will continue to be for many years. Not only is the fast acting insulin superior to what is currently on the market, but the delivery system is also a huge plus for diabetics. I am sure the Dreamboat inhaler will be used for other medical applications, also. The small disposable inhaler will be preferred by diabetics. It is portable, discreet and no pain!

    Al Mann has done so much for diabetics and this is probably going to go down in history as his largest contribution to the betterment of life for diabetics worldwide. Research Al Mann and see what this man has accomplished during his life. He has done so much for many. I do believe he is the Warren Buffet of the scientific world.

    Many people do not understand the scientific reasoning of how the human body works. Al Mann does understand and has proved his brilliance time and time again. Don't take my word but do your homework and make your own decision.

    While researching, study about diabetes......what it does to the human body, the number of people that have it or will have it in years to come and the global cost of treating this disease.

    There is a very interesting video on the web for people that would like to hear an experts opinion on diabetes and Afrezza. The video is very informative. It's nice to have someone explain diabetes and insulin in terms we can understand. Dr.Jay Skyler is an expert and well qualified. Have a look under Dr. Jay Skyler, YouTube.

    What is the value of Afreeza, Dreamboat, or Mannkind? Decide for yourself........How do you put a price on something that has the potential to better the quality of life and health for so many? I think Mannkind will probably be priceless.......and that is why no-one can really even decide on a price because it has the potential to be mind-blowing!

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