Source: MannKind.

It's been a wild year for MannKind (NASDAQ:MNKD) shareholders, who at any time during the year could have seen their shares up well over 100%, or, if they purchased during the summer, down around 60%.

Then again, it's not as if the volatility wasn't expected. MannKind's entire pipeline revolves around Afrezza, the company's revolutionary inhaled diabetes drug, which was reviewed by the Food and Drug Administration's advisory panel and received a PDUFA decision from the FDA. To save everyone the suspense, MannKind's Afrezza was approved by the FDA (which is a good thing, since it has no additional clinical trials under way).

Afrezza offers plenty of potential
As you might imagine, there's an abundance of potential surrounding Afrezza. For starters, according to the Centers for Disease Control and Prevention, there are 29.1 million people in the U.S. with diabetes (this includes type 1, which is genetic, and the more common type 2, which develops over a lifetime). Additionally, there are 86 million adults aged 20 and over that have prediabetes. For MannKind, this means a wide moat of potential for its inhaled drug.

Source: Centers for Disease Control and Prevention.

Second, there's the potential for Afrezza to become the diabetes treatment of choice due to its convenience. Don't get me wrong, an injection isn't particularly difficult -- but the chance to avoid having to use a needle could be the selling point that pushes Afrezza sales through the roof. Not to mention that Afrezza is available for type 1 and type 2 diabetics.

Finally, the fact that diabetes is a chronic condition is in MannKind's long-term favor. Afrezza isn't a cure for diabetes so much as a mediator of a patients' glycemic balance. As long as biopharmaceutical companies approach treating diabetes from the symptomatic side of the equation rather than trying to attack the underlying cause of the disease, we're liable to see diabetes drug developers benefit in a big way.

Three things standing between MannKind and greatness
Of course, MannKind and Afrezza have anything but an easy ride ahead. Afrezza was actually rejected by the FDA in 2011, requiring the company to completely redesign its delivery device and engineer all new clinical studies. Although Afrezza is approved now, MannKind still faces three big hurdles which could derail any attempt at a rally.

1. Afrezza's warning label
Perhaps the biggest obstacle or unknown for Afrezza is whether or not physicians will actually prescribe it. In spite of its approval, Afrezza came with a black box warning that states it shouldn't be given to smokers or people with chronic lung diseases such as asthma or chronic obstructive pulmonary disease, or COPD. The warning label points out that acute bronchospasm incidences were observed in patients on Afrezza with asthma or COPD.

Source: MannKind.

Right off the bat this eliminates a notable chunk of the U.S. population. Within the U.S., CDC figures show that 18.1% of adults are smokers, while 6.3% of adults report having COPD. There's the possibility of overlap within these figures (i.e., smokers can have COPD), but this nonetheless removes millions of possible patients from the drug's treatment pool. It's an even tougher hit since smoking is one of the primary risk factors that can contribute to diabetes.

2. A desperate deal with Sanofi
Secondly, the licensing deal MannKind negotiated with Sanofi (NASDAQ:SNY) was a necessary evil that all but eliminated its upfront cash concerns but potentially killed any significant chance of the company becoming wildly profitable off of Afrezza.

Source: Flickr user Thetaxhaven.

Under the terms of the deal, Sanofi supplied MannKind with $150 million in upfront cash, which was perfect timing considering MannKind was probably on pace to run out of cash by early 2015. In addition, Sanofi agreed to advance MannKind $175 million as part of its expense-sharing collaboration. Sales milestones could wind up netting MannKind $775 million more. On top of these hefty one-time payments, MannKind is eligible to receive a 35% royalty on net Afrezza sales, with the remaining 65% going to Sanofi.

In the extreme short term this looks like a good deal for MannKind, considering how tight on cash it was. However, the company really had to give up a lot of long-term sales potential in order to land Sanofi. If Afrezza winds up being a blockbuster it's possible that MannKind investors won't see very much benefit beyond where the stock is currently priced.

Source: MannKind.

3. A competitive price
Lastly, there has to be some worry over whether or not consumers will be willing to pay a premium for the convenience of an inhalable medication. I personally am a needle-phobe, so I can certainly understand the allure of Afrezza, but if the cost of the product is markedly higher than that of an insulin shot, or if consumers are simply turned off by the side effects of the drug, which can include a cough or throat irritation, they could just pass it up in favor of a traditional insulin shot.

Afrezza isn't even scheduled to launch until the first quarter of 2015, so it'll still be some time before we have a direct apples-to-apples comparison on price between Afrezza and a standard insulin injection.

Tough sledding ahead
The truth is that getting a drug approved by the FDA is only half the battle these days. The remaining half is determined by how successfully a drug is launched. Given the aforementioned challenges, I'd wager that MannKind is in for some tough sledding this winter. That doesn't mean Afrezza won't succeed, but it could mean that MannKind is already fully valued right here.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.