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MannKind: Great Trade, Good Investment? - views
CHARLOTTE, N.C. (Stockpickr) -- On Aug. 14, MannKind (MNKD) reported long-awaited positive phase III results from two clinical trials of its Afrezza insulin and inhaler product. Now the company finds itself faced with a fascinating mixture of positives, negatives and uncertainties, guaranteeing that MNKD will be an excellent trading stock -- with the whipsaw price-movements so dearly loved by traders -- for the foreseeable future.
But couldn't MNKD also represent an exceptional investment right now, as well?
Let's look at it from both angles, after neatly categorizing the positives, negatives and uncertainties.
1. Clinical trials for both type 1 and type 2 diabetes patients met the primary endpoints sought by the company and, presumably, the FDA.
2. Afrezza, by itself or in combination with an oral insulin product, was well-tolerated by nearly 100% of participating patients.
3. The trials showed that Afrezza, by itself or in combination with an oral insulin product, may well reduce or eliminate many diabetics' reliance on injected insulin.
4. As the FDA has, in the past, already approved Exubera -- widely perceived to be an inferior product compared to Afrezza -- FDA approval of Afrezza in early 2014 should be a near-certainty.
5. Exubera was pulled by Pfizer (PFE) in 2007, so if approved by the FDA, Afrezza will hold an absolute monopoly on the inhaled-insulin market, which many believe to be initially worth $3 billion yearly.
1. Approximately one-third of patients participating in the Afrezza clinical trials experienced, as a side effect, a mild cough and a slightly lessened exhaling power of the lungs.
2. A greater number of Afrezza patients experienced low blood sugar, compared with patients using injected insulin.
3. Doctors have for many decades been totally familiar with the use and prescribing of injected insulin. Afrezza will be totally new to them, with regards to dosage, performance, side effects and so on.
4. Exubera, Pfizer's inhaled-insulin product previously approved by the FDA, proved to be a commercial failure, losing $3 billion for that company and leading them to pull out of the market after only one year. Many fear that AFREZZA may suffer a similar lack of commercial success.
6. MannKind earns no money and is fairly deep in debt. Without FDA approval of Afrezza, or without a marketing partner to market Afrezza after approval, MNKD is worth pretty close to $0.
1. Even though all indications now point to an FDA approval of Afrezza in early 2014, nobody can be absolutely certain of it until it actually happens.
2. In light of the negative medical points mentioned to the left, Afrezza's increased ease and convenience alone may not be sufficient to motivate doctors to switch away from prescribing injected insulin to their diabetic patients.
3. Though almost everyone considers Afrezza to be quite superior to Exubera, nobody is certain that diabetic patients will accept or demand Afrezza in much greater numbers than exhibited with Exubera in 2007.
4. Pfizer and Lilly have previously given up on the market for inhaled insulin; nobody is publicly expressing confidence that either company will partner with MannKind to market Afrezza.
5. Sanofi already has a successful insulin program. While there is speculation that Sanofi could partner with MannKind or acquire MannKind in order to add Afrezza to its own product lineup, no-one has expressed confidence that it will do so.
With regards to trading MNKD, you can see by the chart that the stock has already provided the big-volume fast moves, both up and down, that traders love to play. And the huge divergences in the Bollinger Bands and the moving average line in the chart indicate that these heavy-volume swings will continue, going forward.
Plus, the longs and shorts, armed respectively with the positives and negatives listed above, will continue battling back-and-forth, and the above-listed uncertainties will continue to add to the chaos, until all is settled next year. So MNKD should remain a great stock to profitably trade, multiple times, for months to come.
What about MNKD as a good investment?
Well, the stocks of big successful biotech companies are currently trading at an average price-to-sales ratio of about 3. If all goes perfectly for MNKD, and AFREZZA is approved and successfully marketed and turns in annual sales of $3 billion, MNKD might then be reasonably expected to sport a market cap of $9 billion. In that best-case scenario, with 284 million shares outstanding, MNKD would trade at nearly $32/share -- that's more than a 450% increase from Friday's close at $5.77.
So at this point it might be worth determining how much money you would be willing to lose completely, in exchange for the possibility of a 450% return on your money, within a year or two.
When you come up with that figure, then you may wish to consider investing half of that amount at the current level. Then, if MNKD drops further, to the monthly moving average line, for example (currently at $4.22), then you may choose to add to your position, using the remaining half of your money that you are willing to lose completely.
Using the above-outlined strategy, you will either earn a very nice return on a small investment in MNKD or an even better return on an even larger investment -- or you will lose 100% of your investment, which you were willing to lose, anyway.
-- Written by Ben Brinneman in Charlotte, N.C.
Trader Ben Brinneman, featured on MarketWatch, Bloomberg and Reuters, resides in Charlotte, N.C., and is the owner of C Squared Trading. Brinneman started his career trading bonds and was an analyst for a wealth management firm. Brinneman and his team at C Squared Trading have taught hundreds in a one-on-one mentorship setting via Skype or live in Charlotte.
You can follow some of their free trades and tips on Twitter at @csquaredtrading.