Considerable Risks Remain for MannKind

Approval for Afrezza may be the least of MannKind's worries

Jun 18, 2014 at 9:17AM

MannKind Corporation (NASDAQ:MNKD) focuses on the discovery, development and commercialization of therapeutic products for patients with diseases such as diabetes.

MannKind has received a lot of attention recently with its diabetes drug, Afrezza, facing an impending PDUFA decision on July 15, 2014. Afrezza is an ultra-rapid acting pulmonary insulin that closely approximates the normal early insulin release seen in healthy patients. In phase 3 studies for the treatment of diabetes, Afrezza showed similar efficacy to standard care, thereby validating the significant potential of the product to replace available therapeutics, should it receive regulatory approval next month. 

Afrezza approval may already be priced in
A primary concern of investors is whether or not approval is priced in to the stock. Shares are up nearly 90% since the overwhelmingly supportive Advisory Committee vote on April 1, 2014.

Given the positive sentiment exhibited by management and the subsequent 90% increase in share price leading up to the PDUFA meeting, I suspect that approval for Afrezza would not be a surprise to the market; however, rejection or further delay probably would be.

Regulatory approval doesn't always translate to success
While a positive regulatory approval would represent a giant leap for MannKind, considerable risks do remain. On the one hand, it appears that the immediate concern of shareholders is labeling, which we'll know more about after the FDA hopefully approves Afrezza. If the FDA implements such restrictions, the market for Afrezza would be limited, thus reducing revenue potential and its overall consumer uptake.

On the other hand, management must determine how to commercialize Afrezza, whether that be via partnership, "lone-wolf" or a takeover. Although it remains uncertain, Investors were painted a better picture by management with respect to this key decision during the Goldman Sachs Healthcare Conference on June 12. Specifically, COO Edstrom stated that MannKind intends to enter a partnership for Afrezza and is actively communicating with other companies that operate within the diabetic market. 

Of course, Mannkind's potential partner will wait to see what the label approved by the FDA entails. I presume that the less restrictions placed on the label, the more favorable the terms of a partnership are likely to be. But what if the label for Afrezza is unattractive? Will MannKind still decide to partner under less favorable terms? Unfortunately, these questions remain unanswered, and they also highlight the additional risk of further shareholder dilution. 

If a partner is not acquired, what next?
If a partnership for Afrezza is not formed for whatever reason, the lone-wolf option to commercialization must be examined. MannKind reported a cash position of $35.8 million at the end of Q1 2014, compared to $70.8 million in Q4 2013, with $134 million in operating cash burned over the trailing-12 months. With relatively little money left, in order to market Afrezza alone, MannKind would probably need to raise additional capital before Q3 2014. This would likely be achieved through debt or equity raises, which would dilute current shareholders.

My Foolish final thoughts
Undoubtedly, regulatory approval is one of many hurdles that must be cleared in order for MannKind to transform into a major player in the diabetic market. Thus, it may be best to remain on the sidelines until after the PDUFA decision, as I suspect that the road to profitability could be a whole lot bumpier than the 90% run-up since April appears to suggest.

Leaked: This coming blockbuster will make every biotech jealous
The best biotech investors consistently reap gigantic profits by recognizing true potential earlier and more accurately than anyone else. Let me cut right to the chase. There is a product in development that will revolutionize not how we treat a common chronic illness, but potentially the entire health industry. Analysts are already licking their chops at the sales potential. In order to outsmart Wall Street and realize multi-bagger returns you will need to Motley Fool’s new free report on the dream-team responsible for this game-changing blockbuster. CLICK HERE NOW.

Trevor Lowenthal 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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't 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.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information