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What MannKind Corporation's Failure Teaches Biotech Investors About Risk

By Todd Campbell and Kristine Harjes – Mar 14, 2016 at 1:26PM

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The inability for Afrezza to establish a foothold in diabetes reminds biotech investors to consider the risk of a commercial failure.

Commercializing medicine that works in an entirely unique and new way isn't easy, and investors were reminded of that reality when partners MannKind (MNKD 1.07%) and Sanofi SA (SNY -1.79%) failed to establish a foothold in diabetes for their inhalable insulin, Afrezza.

Although MannKind isn't giving up on Afrezza, Sanofi has, and given that MannKind's share price has fallen to a little over a dollar from a peak of $7 last summer, many investors appear to have given up, too. What can investors learn from Afrezza's commercial failure, and is MannKind worth buying? Find out in this healthcare segment of The Motley Fool's Industry Focus: Healthcare podcast.

A transcript follows the video.

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This podcast was recorded on March 9, 2016. 

Kristine Harjes: So, moving a little bit farther down the approval pathway, once you have a drug that has gone through trials and it didn't fail -- in fact, it performed great -- and it goes through approval, gets the green light from the FDA, the next risk you're looking at there is commercial failure. How does that one work?

Todd Campbell: Well, probably the best recent example of a commercial failure is MannKind's Afrezza. You and I have talked a lot about it on the show, when it won approval from the FDA, people thought that it could really change the burden that's on diabetics in how they dose themselves with insulin. Afrezza is an inhalable version of insulin that theoretically would reduce the need for them to inject themselves with insulin at mealtime. People thought that was a big advantage. However, commercially, it just didn't stick. And as a result, sales ended up in the couple million dollars per quarter range, and that's just not enough to keep the lights on.

Harjes: Yeah. And this, mind you, was a drug that, before it was actually commercialized, was forecast to be a billion-dollar blockbuster. And the disappointment that came with it really just hammered the stock. But, interestingly, I was looking at it, last time we talked about this company on the podcast was January 6th of this year. And MannKind is up almost 60% since then. Would you take that as some sort of sign of encouragement, that maybe there is something to this whole Afrezza drug?

Campbell: Well, it's now a $1-$2 stock. I don't know, I don't put too much credence in the share price movement at this point. They've got a tremendous amount of debt, their balance sheet isn't very healthy. I feel like, you're grasping at straws in thinking that Sanofi, its commercialization partner, that they failed -- where they were able to build Lantus into a multi-billion dollar long-lasting insulin drug, they failed with Afrezza, and MannKind thinks that on their own, they can do better? I don't know. I think the proof has to be in the pudding there. I think, at this point, you have to say this is a commercial failure. And until they prove you otherwise, better to stay on the sidelines and just not risk an up 20% or down 20% day with your money.

Harjes: Yeah, that's the impression I've always had from this stock, that it's extremely volatile, extremely risky, and recently, the bump that it's had, to me, seems like speculation more than anything, over a possible buyout. But, again, it remains to be seen.

Kristine Harjes has no position in any stocks mentioned. Todd Campbell has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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.

Stocks Mentioned

MannKind Corporation Stock Quote
MannKind Corporation
$4.71 (1.07%) $0.05
Sanofi Stock Quote
$45.05 (-1.79%) $0.82

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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