This Just In: Is This Analyst Wrong About the Future of MannKind?

Wednesday is looking like a very good day for MannKind (MNKD 0.37%) stock -- or a very bad day. It really depends on how you look at it.

Yesterday the maker of Afrezza-brand inhalable insulin announced the termination of its co-marketing alliance with Sanofi (NYSE: SNY) -- less than a year after Sanofi helped bring Afrezza to the retail pharmacy market in the U.S. Afrezza has been approved by the Food and Drug Administration as an inhalable alternative to the insulin diabetics must ordinarily inject into themselves by needle.

But analysts are taking extremely divergent views of the news.

Why this is bad
It almost goes without saying that this is news sounds bad for MannKind -- but one analyst went ahead and said it anyway. In response to the news that Sanofi is bailing out of the partnership, analysts at Piper Jaffray declared their intention to cut MannKind's price target to $0.05 (from its current share price of $0.75). And if "$0.05" sounds to you like "just five cents from zero," there's a reason for that.

Piper thinks MannKind is going bankrupt. Indeed, in its note, Piper even came out and asked (rhetorically) "how the company can avoid bankruptcy," warning that "at best, the company has one year of cash left, assuming it significantly curtails spending." Worse, because "spending is required" to launch a new product, it's almost certain that MannKind will run out of cash faster than that.

Why this is ... good?
And yet, at the same time as Piper was painting this bleak picture, analysts at Griffin Securities are taking a contrary view. As related in StreetInsider.com, these New York bankers argue that ending the alliance with Sanofi was really "the best outcome" for MannKind shareholders, because "the multinational drug company devoted considerably less resources to Afrezza than to its new long-acting insulin, Toujeo."

As fellow Fool Max Macaluso noted, getting Afrezza to market was always going to require "an enormous marketing campaign." And not just that -- doctors and patients are both used to injectable insulins such as Novo Nordisk's (NVO +6.88%) NovoLog, but educating doctors as to Afrezza's safety will cost money, and training patients "to use the inhaler" will cost even more. Yet according to Griffin, "direct-to-consumer advertising has been virtually non-existent" under the Sanofi partnership.

With Sanofi out of the picture, Griffin believes MannKind can now operate with a freer hand, and spend what it needs to win acceptance for Afrezza.

Let's go to the tape
So who's right in this debate? Is it Piper, which values MannKind at just a nickel, or Griffin Securities, which has just upgraded MannKind to buy and assigned a price target nearly 100 times higher ($4 a share)?

I'm afraid our answer is going to be a bit lopsided today.

Here at Motley Fool CAPS, we've been tracking the performance of Piper Jaffray's stock picks since mid-2006. What we've found is that Piper outperforms about 87% of all the other investors we monitor, and has established a winning record in Biotech over the years.

Already one of our best-scoring analysts in pharmaceuticals, Piper Jaffray scores 56% for accuracy on its biotech picks, where it has amassed a record of more than 990 percentage points of market outperformance on over the past decade. Among its winners in biotech and pharma, we find:

In contrast, our data feeds for Griffin Securities are currently... empty. We know the analyst has been picking stocks for a while, because the recommendations are all right up there on StreetInsider to review (and analyst's three most recent recommendations of Unilife Corporation, Ziopharm, and Intrexon are all down since Griffin picked them). We just don't have hard numbers to confirm our initial observation that Griffin's stock-picking skills seem poor.

The upshot means to investors
So where does this leave investors? One analyst, with an established track record, thinks MannKind is going to zero (or at least heading for the same zip code as zero). The other analyst sees MannKind stock soaring to $4. But that analyst is an unknown quantity.

If you use Motley Fool CAPS as a tool for tuning out noise, and evaluating which analysts' opinions are worth listening to, as I do, the choice here should be clear -- and the numbers we see at MannKind make the choice even clearer.

According to data from S&P Capital IQ, in its entire lifetime as a public company, MannKind has never earned a profit. So far this year, the company has reported losses of more than $90 million, cash burn of nearly $45 million, and thus appears to be burning cash at an annual run-rate of about $60 million.

To feed those fires, MannKind had just under $33 million at the end of September. A recent stock offering probably raised less than $36 million more after fees. My best guess, then, is that the company today probably has no more than $55 million cash on hand -- so Piper is dead on the money when it says MannKind is a year away from running out of money. And Piper could also be right about the risk of bankruptcy.

Even if it sidesteps that risk, though, there's no guarantee MannKind will be able to compete successfully against the likes of Novo Nordisk, which boasts a market cap nearly 500 times as large, $2.5 billion cash in the bank, essentially no debt, a proven product, and a strong 15% growth rate.

Given the available data, I know which analyst I'd be listening to, here. And I know which company I'd pick to win the insulin wars, as well. I suspect you do, too.