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Should AstraZeneca Buy MannKind?

MannKind (NASDAQ: MNKD  ) has finally gotten its hands on an FDA approval for its inhalable insulin for diabetes patients. The years-in-the-making approval marked an important (and necessary) milestone for MannKind, but its approval presents a host of new challenges for the company.

The biggest of those challenges is unquestionably money. MannKind simply doesn't have enough of it. The company's $35 million stockpile won't be enough to orchestrate the significant land grab necessary to amass critical market share.

That means MannKind is probably going to be looking for a partner or a suitor.

One company that might be wise to consider acquiring MannKind is AstraZeneca (NYSE: AZN  ) , which is fresh on the heels of deflecting attempts by Pfizer to buy it.

Source: AstraZeneca

Hitting aggressive targets
AstraZeneca faces its own challenges, including demonstrating to investors that its board was correct to argue against Pfizer's $118 billion bid.

The c-suite's argument for remaining stand-alone stems from enthusiasm -- for right or wrong -- surrounding its new operational focus.

The company argues that its sales will return to their 2013 levels by 2017 and that sales could essentially double by 2023 on the back of new products for big patient populations including diabetes.

In December, AstraZeneca demonstrated its willingness to pay out cash to shore up its diabetes product line up when it spent more than $4 billion to buy out partner Bristol-Myers Squibb from their diabetes joint venture.

That deal gave AstraZeneca a $1 billion collection of diabetes drugs, including GLP-1 inhibitors Byetta and Bydureon, which compete against Novo Nordisk's blockbuster Victoza.

In addition to those diabetes drugs, AstraZeneca also won approval for SGLT-2 inhibiting drug Farxiga in January.

Despite the potential from those drugs, AstraZeneca's diabetes pipeline is a bit thin in terms of new molecular entities. Instead, most of its diabetes trials center on potential label expansions or combination drugs, such as SaxaDapa, which combines its Onglyza with Farxiga.

That suggests that the company may be willing to add another drug, such as Afrezza.

Source: MannKind

Opportunity with risk
Of course, rolling out Afrezza may not be all roses and daisies. The company didn't win FDA approval until its third attempt, and its FDA-approved label is far from a slam dunk for doctors considering prescribing it.

Afrezza also isn't the first inhalable insulin to ever reach the market. Pfizer launched and soon shuttered Exubera almost a decade ago. Granted, Exubera was not the same drug as Afrezza and Afrezza's dosing is far simpler, but it still raises doubt over Afrezza's commercial success in the back of investors' minds, and conceivably those of potential acquirers, too.

If Afrezza's launch falls on deaf ears, an acquirer like AstraZeneca would be faced with a stiff write-off. After all, MannKind's $4 billion market cap suggests the drug would need to do at least $500 million in annual sales just to get to a price to sales level that matches up with other industry acquisitions, such as Shire's purchase of ViroPharma or Actavis' purchase of Forest Labs.

Fool-worthy final thoughts
The big question facing investors is what kind of a deal MannKind is hoping for. If it's hoping to remain a standalone company, it will probably have to give up a big chunk of its sales, perhaps as much as half, to link up with a partner like AstraZeneca. If that happens, justifying MannKind's current market cap gets tougher.

If a company like AstraZeneca does come to the table with an acquisition, I'd be surprised if it's willing to pay much in the way of a premium. If not, negotiations could stall until early sales data comes in. Another option, however, might be for AstraZeneca to ink a deal that contains an option to buy MannKind later. Regardless, there's no indication AstraZeneca has any plans to link up with MannKind, so investors will have to wait and see.

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Read/Post Comments (4) | Recommend This Article (10)

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 July 01, 2014, at 7:12 PM, Ynashed wrote:

    Fool article

  • Report this Comment On July 02, 2014, at 2:13 AM, mbracket123 wrote:

    Um, Afrezza will do $500M in the first year of sales just in uptake from grandmas. Hello.

  • Report this Comment On July 02, 2014, at 7:32 AM, baloneyspotter wrote:

    Look, I realize that Afrezza is better than Exubera, but it will take 'years' to convince most Doctors to prescribe Afrezza & longer to get near the top of the ADA & Endo recommended drugs for type II's and what is out there available now is better. Don't believe all the chatter that needles hurt and all. I just see a reason to give people this drug at all. And I am hearing that another private company has this similar inhaler drug but with better data coming soon. Finally, Mannkind market cap is near the moon right now - went up way too much. Should crash in the next few months.

  • Report this Comment On July 11, 2014, at 11:57 AM, larryw101 wrote:

    The dumbest article I've read yet on MNKD.

    But then again, what do you expect from the fools Tom Gardner uses to write for him?

    This bozo author can't even write well let alone provide anything informative on Mankind.

    Motley Fool = Garbage Journalism

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Todd Campbell

Todd has been helping buy side portfolio managers as an independent researcher for over a decade. In 2003, Todd founded E.B. Capital Markets, LLC, a research firm providing action oriented ideas to professional investors. Todd has provided insight to a variety of publications, including SmartMoney, Barron's, and CNN/fn.

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8/27/2015 4:04 PM
AZN $31.61 Up +0.48 +1.54%
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MannKind Corp CAPS Rating: **