MannKind Corporation (NASDAQ: MNKD) is having yet another rough day in the market. In fact, since the stock peaked at $6.71 per share after news of the label change on October 10th, we’ve seen relatively consistent declines as fears seem to be striking the hearts of investors. However, the great Warren Buffett has said time and time again that the right time to buy is when fear is high. In my opinion, the opportunity surrounding this stock is just the type of opportunity that Buffett was talking about. Today, we’ll talk about why fear is high and why this is an opportunity. However, before we do, we’d like to thank our partners at Trade Ideas for being the first to alert us to the declines. Currently (10:08), MNKD is trading at $3.82 per share after a decline of $0.31 per share (7.50%) thus far today.
Why Fear Is High Surrounding MNKD
As mentioned above, we’ve seen consistent declines in MannKind over the past several trading sessions, suggesting that fear surrounding the stock is high. But why are investors feeling fear at the moment? Well, the answer is actually a relatively simple one.
Earlier this month, the United States Food and Drug Administration approved a label change for the company’s flagship treatment known as Afrezza. This proved to be great news as it would likely help to increase sales. As a result, investors frenzied, sending the stock climbing dramatically. However, that climb swiftly came to an end after MNKD reached a peak on October 10th.
The declines started after the company announced a registered public offering, raising more than $60 million through the issuance of new shares. Of course, any time an offering is done, it leads to fear among investors, as these offerings are riddled with dilution, ultimately making it so that those that already held shares now hold a smaller piece of the pie, so to speak.
However, declines have continued far past what they normally would have on an offering. So, what’s the deal? Well, some of the more recent declines can be blamed on Afrezza sales. You see, investors expected that the label change would lead to increased sales. However, for the week ending on October 6th, sales actually dipped slightly according to a recent report by MNKD.
Why This Is Actually An Opportunity
Following the lead of Warren Buffet, I believe that MannKind Corporation represents an incredible opportunity at the moment. To understand this opportunity, it’s important that we address the two big issues that led to the fear among investors in the first place – the registered offering and the dip in Afrezza prescription sales.
First and foremost, I’d like to start with the prescription sales. You see, investors tend to expect things to happen lightning fast; and while it would be great if this were the case, it’s simply not. At the end of the day, changes take time to implement. With that said, while the label change had taken place by October 6th, that change was freshly minted. Therefore, it was not being used during the week that sales dipped and cannot be taken into the equation. Nonetheless, it’s important to remember that growth takes time, and the next couple of weeks of sales reports may not reflect the true power of the label change either. This doesn’t discount the fact that the label change is likely to lead to stronger sales for MNKD ahead, nor does it discount the opportunity presented by the label change.
Now, let’s go ahead and address the offering. Dilute offerings just about always prove to be a cause for concern among investors. However, often times, investors seem to discount what the offerings really offer. In this particular case, while the offering did create dilution, it gave MNKD much needed funding. This funding will ultimately help the company survive a rough time as well as further their goals with regard to the improved commercialization of Afrezza. Think about what $60 million could do – or even $10 million in the right place. This could expand sales in a big way.
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The Bottom Line
The bottom line here is a very simple one. At the end of the day, MannKind has made some incredibly strong moves in the recent past. With the label change on Afrezza, sales and refills are likely to become easier to come by. On top of that, the recent offering will give the company the funding it needs to fully exploit this change. All in all, while many are viewing this as a losing bet, I view MNKD as a potentially massively profitable opportunity!
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