Any time a biotech like MannKind Corporation (NASDAQ:MNKD) ends the year with stock more than double where it started, it's hard to call it anything but successful.

But it could have been even better.

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MannKind is the perfect example of premature valuation. Investors rush into the stock as clinical trial data becomes imminent and the stock has no place to go from there but down.

The run-up in the first half of the year came in anticipation of the release of  two phase 3 trials required by the Food and Drug Administration to approve the Dreamboat inhaler for MannKind's insulin Afrezza.

Clinical trials with a slightly larger inhaler already showed that the inhaled insulin was capable of lowering blood sugar levels, so the trials seemed fairly low risk, attracting investors in the process.

Positive results, temporary spike
MannKind popped in August following positive results for the two phase 3 trials. The drug and device did exactly what was expected -- nothing less, but not much more, either. In one of the trials, Afrezza was shown to be noninferior to -- biotech speak for "just as good as" -- Novo Nordisk's (NYSE:NVO) injected insulin NovoLog. However, a larger percentage of the patients taking Novo Nordisk's drug hit their target levels of A1c -- a long-term measure of blood sugar levels -- than those taking MannKind's drug.

Nevertheless MannKind saw a double-digit increase following the results. I questioned the valuation at that point, which turned out to be a very good call. MannKind is off its high of the year by 40%. There wasn't any major news since the phase 3 trial results were presented in August; the move seems to be entirely due to investors selling the news. The current valuation of $1.5 billion looks reasonable. There's plenty of upside available, but also questions over whether MannKind can get there.

Getting back
While the phase 3 data wasn't out-of-this-world good, it was plenty good enough to get the drug approved. Just the anticipation of Afrezza's approval could be enough to send the stock higher, as we saw with the phase 3 data. The response to the last rejection has already been submitted, putting an approval decision on or before April 15 if the FDA sticks to its internal goal.

To reach its full potential, investors will need to be convinced that MannKind can not only get Afrezza approved, but that it'll be able to compete with NovoLog and Eli Lilly's (NYSE:LLY) injected insulin Humalog. Avoiding injections is certainly a huge selling point, but it's also a potential negative since doctors are generally skeptical of delivering drugs via the lungs for diseases that don't affect the lungs.

Announcing a marketing partnership with a large up-front payment would go a long ways toward convincing investors that Afrezza can take market share from Novo Nordisk and Eli Lilly. An endorsement by a big diabetes player would be a good sign that the market potential is as big as MannKind thinks it is.

Fool contributor Brian Orelli has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.