Why MannKind is the Ultimate Battleground Stock

Short-sellers usually have good reason when they jump into a stock with both feet. That said, shorts aren't always correct in their assessment of a company's prospects, potentially setting up a highly profitable phenomenon known as a "short squeeze" for investors who are long the stock in question. 

A fierce battle between longs and shorts is under way for MannKind  (NASDAQ: MNKD  ) , and so far longs are winning as shares have risen spectacularly year to date. Even so, the latest short numbers show bears still think they will win the war, with shorts compiling a noteworthy 29% stake in the biopharmaceutical company. With that in mind, here is a look at the bull and bear perspectives on MannKind. 

MNKD Year to Date Price Returns Chart

MNKD Year to Date Price Returns data by YCharts

The bull case
MannKind's inhaled insulin product, Afrezza, recently received a positive vote from an FDA advisory committee, setting the stage for the agency to hopefully approve the drug for sales. The drgu's scheduled target action date is July 15, and the FDA will be deciding whether to approve it for type 1 and/or type 2 diabetes.

What has set the stock on fire of late is Afrezza's commercial potential. The global diabetes market is ridiculously big, with the potential to top $100 billion in annual sales by 2018. The market already boasts two megablockbuster insulin products and their respective delivery devices: Eli Lilly's Humalog/KwikPen and Novo Nordisk's NovoLog/FlexPen. 

If approved, Afrezza likely won't be used as a complete replacement for these injectable insulins, but rather as a supplement. And therein lies the crux of the debate. Bulls could easily view this as a positive as users of either type of injectable may also want access to an inhaled insulin product. Viewed this way, it's fairly easy to see how Afrezza and its delivery apparatus, dubbed "Dreamboat", could be blockbusters in the making. 

The bear case
Short-sellers, by contrast, view Afrezza as a niche product with limited commercial potential. Specifically, they are betting it will appeal to only a handful of diabetics who suffer from phobias related to needles and injections.

I think many bears also expect a partnership that is back-loaded with incentives, instead of up-front milestone payments, which MannKind desperately needs. It's no secret that MannKind doesn't have enough cash to launch Afrezza itself and needs an infusion of cash soon to meet its hefty financial obligations. Unfortunately,a partnership is not likely to be signed prior to an approval, forcing investors to play the waiting game for a few more weeks and see if Afrezza's third time in front of the FDA will be the charm.

Foolish wrap-up
MannKind's long road to FDA approval for Afrezza is hopefully coming to an end. Even so, the situation has only fanned the flames of the ongoing battle between the bears and bulls. Presently, I think there are too many unknowns to make a judgement call either way. The sheer size of the diabetes market lends at least some credence to the forceful arguments made by the bulls, but bears certainly have interesting points that should be considered as well. Investors with a long-term outlook should wait on the sidelines until Afrezza's FDA approval is in hand and a partnership is inked. That way, you will have a better understanding of MannKind's growth prospects. 

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Read/Post Comments (16) | Recommend This Article (17)

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 June 04, 2014, at 3:05 PM, missjessiecat wrote:

    My favorite advisor, The Motley Fool, continues to waffle on MNKD. Believe me, there is no better investment than this at today's prices (about $10.50)

  • Report this Comment On June 04, 2014, at 3:17 PM, marp11 wrote:

    ARNA next to destroy shorts

  • Report this Comment On June 04, 2014, at 3:28 PM, fuzzface52 wrote:

    The foolish wrap up on this article is exactly why no one makes money from listening to the advice of this organization! If you wait for the rocket ship to the moon after it has already blasted off guess what your stuck with?

  • Report this Comment On June 04, 2014, at 3:40 PM, kthor wrote:

    If i have diabetes , I would want a MNKD inhaler!

  • Report this Comment On June 04, 2014, at 3:45 PM, theeseer wrote:

    If Afrezza is approved and the 27 to 1 in favor vote of the FDA's own ADCOM advisory board says so then there is no "bear case". The reason being that the live testimony of Doctors and patients at the ADCOM and the surveys of the test subjects who have been using the drug are wildly positive. Niche product? HA! Bockbuster You bet!

  • Report this Comment On June 04, 2014, at 5:59 PM, alicefaye33 wrote:

    I have several friends with diabetes and they are thrilled at the prospect of Afrezza being available to make their quality of life better. Regardless of the stock issue, good or bad, they are anxiously awaiting Afrezza to be available to the general public!!! I think Mankind has a winner on its hands and my diabetic friends will be the "true" winner here!!

  • Report this Comment On June 04, 2014, at 6:08 PM, b4unewme2 wrote:

    Shorts have it wrong, it's not a niche market. You have to have diabetes to really understand what having to inject yourself several times a day really means...a negative lifestyle change. While one could argue that profit taking may take the price down short term, the market potential for Afrezza is huge. Shorts will take a beating.

  • Report this Comment On June 04, 2014, at 6:32 PM, Jason91789 wrote:

    More pain to come for the shorts. Cover now before it too late. LOL

  • Report this Comment On June 04, 2014, at 7:06 PM, theinnerage wrote:

    Afreeza is a no brainer. I have spoken to many people of all ages who have diabetes and hands down they ALL said they'd rather have an inhaler(like a person who has asthma) than shoot a needle like an addict. Done!

    Mannkind on the Moon!

  • Report this Comment On June 04, 2014, at 9:23 PM, FrankjJL wrote:

    I am bullish on MNKD. In @7.71 a little late but this stock is clearly a winner.

  • Report this Comment On June 04, 2014, at 10:44 PM, Topdoginvesting1 wrote:

    How about a one of a kind life changer for people who are Diabetic. Mr. Mann is 88 years young, and yes he looks good, but after approval, MNKD will move rather quickly for a Partner or buyout. Allot of Diabetics are scared of Needles, and the pressure of millions who are Diabetic to get the Inhaler to Market will be intense. This is a life changing product, not a cell phone with some new gadget inside...I expect more articles to come out, shorts will be desperate as the FDA date nears, but when approved, and the short squeeze happens, who actually knows where MNKD stock will land. But more importantly, a person with Diabetes will have a LIFE changing new product.

  • Report this Comment On June 04, 2014, at 10:57 PM, Topdoginvesting1 wrote:

    The American Diabetes Association last year estimated that the U.S. diabetes market has grown from $174 billion in 2007 to $245 billion in 2012...The advisory committee reviewing it's inhaled treatment voted 13-1 in favor of Afrezza (uh-Frezz-uh) for type 1 Diabetes...They voted 14-0 that the inhalable insulin be granted approval to improve Glycemic control in type 2 Diabetes patients. The FDA follows the recommendation of third party committees. 31.6% of men in America are considered obese, 33.9% of women are considered obese. The U.S. leads the world in obesity...

  • Report this Comment On June 04, 2014, at 11:08 PM, Ventus16 wrote:

    I am a family MD in practice for 33 years. The day this product is available in Canada, I will discuss using it in at least 25 type 2 diabetics. The bears are clueless. Talk to somebody who works in the trenches.

  • Report this Comment On June 04, 2014, at 11:39 PM, erich69 wrote:

    The only case the bears have to stand on is sheer luck that the FDA doesn't approve Afrezza. This is one of the biggest game changers I've seen in medicine in a long time. The market potential is mind blowing. I could care less about a short squeeze rocketing up the price of my shares because I have no intention of selling any shares for many many years.

  • Report this Comment On June 05, 2014, at 2:51 PM, miaaway wrote:

    The question is to get on or off the bus. Get off the bus and watch it ride away. Try to catch up later, you will always be looking at my smiling face in the rear window waving at you. My stop is at least 5 years out. Catch me if you can.

  • Report this Comment On June 06, 2014, at 1:06 PM, larryw101 wrote:

    This a prime example of the garbage journalism Motley puts out these days.

    No conviction either way by the author, just a rehash of what everyone already knows.

    Motley Fool is just that. Foolish journalism by know-nothing authors such as this clown.

    Looks like anyone can write for them these days.

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George Budwell

George Budwell has been writing about healthcare and biotechnology companies at the Motley Fool since 2013. His primary interests are novel small molecule drugs, next generation vaccines, and cell therapies.

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9/4/2015 3:59 PM
MNKD $3.89 Up +0.20 +5.28%
MannKind Corp CAPS Rating: **