You could say that MannKind (NASDAQ:MNKD) is treading water a bit these days -- at least from the outside perspective. The company won't announce results from its phase 3 studies of inhalable insulin Afrezza until August. Don't expect much news from MannKind in the meantime.
Meanwhile, investors are surfing one giant wave with MannKind stock. Shares have surged more than 200% so far in 2013. Is a wipeout potentially in store, or is this the just the beginning of one epic wave?
It's not difficult to identify the possible ways that MannKind investors could be wiped out. First on the list would be disappointing results from the latest Afrezza clinical trials. Most people accept as a foregone conclusion that everything will go smoothly. While that does seem likely, never say never.
There's also the possibility that the Food and Drug Administration will fail to approve Afrezza for the third time in a row. Again, the chances of this scenario unfolding seem to be slim. All signs point to MannKind having its ducks lined up in a row for the approval process to go well. Nevertheless, stranger things have happened. A positive FDA decision isn't in the bag yet.
Another nightmare situation for MannKind would be in not finding a partner to help commercialize Afrezza, assuming that FDA approval is obtained. The company is in talks with multiple prospective partners, but nothing is finalized at this point. It's possible that these potential partner candidates take a pass on Afrezza. If MannKind doesn't secure a partner, the stock could tank.
Perhaps the most likely wipeout scenario, though, is that a psychological letdown of sorts occurs at some point with an accompanying plunge in the stock -- even if all else goes relatively well. Investors could adhere to the old adage of "buy the rumor, sell the news."
Let's not discount the possibility that the best is yet to come for MannKind. In my view, the Afrezza studies will likely show positive results. I also think that the FDA will, at long last, grant approval for the inhalable insulin.
If these two developments occur, MannKind should be able to line up one or more partners. It could even be snatched up by a larger company along the way. A buyout would almost certainly be the equivalent of an epic wave, driving up shares in a major way.
MannKind's founder Al Mann thinks that Afrezza could be a game-changer for diabetes. We could dismiss that as hyperbole. Mann believes it, though. He has put $930 million of his own money into his quest to bring Afrezza to market.
Suppose Al Mann is right, and Afrezza quickly becomes the top-selling insulin in the world. It would have to displace Sanofi's Lantus, which generated more than $6 billion in revenue last year. If this happens, MannKind's stock is a bargain at current prices.
There are many who think the stock will fall. MannKind's short percent of float stands at 30%. The number of shares sold short has climbed around 85% since the beginning of the year. For now, though, more investors seem to think the surf's up, and they continue to drive MannKind's shares higher.
The first answers to what the future holds for MannKind and its shareholders probably won't be available until August when the Afrezza clinical results are announced. The next few months will likely feel like an endless summer for investors eagerly awaiting those findings.
In the meantime, MannKind really isn't treading water, although that might appear to be the case from the outside. The company is frantically working to have those clinical results ready on schedule.
Investors definitely are hanging ten right now, though. Are they headed for a wipeout or a sustained ride on an epic wave? Leave your thoughts in the comments section below.
Fool contributor Keith Speights 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.