MannKind is having an incredibly rough time in the market – and has been all year. However, for the past two days, the stock has declined dramatically after a big analyst downgrade. The downgrade focused solely on Afrezza. So today, we’ll take a look at the downgrade, what we’ve seen from MNKD with regard to Afrezza sales, and what we can expect to see moving forward.
Piper Jaffray Downgrades MannKind
Yesterday, Piper Jaffray made an announcement that they made the decision to downgrade MNKD from a “Neutral” rating to an “Underweight” rating. Here’s what analyst Joshua Schimmer had to say…
“IMS scripts for Afrezza have been lackluster to say the least, so we spoke with five primary care and endocrinology specialists with high volumes of diabetes patients to gauge their experience with and outlook for the product. Unfortunately it sounds to us that while awareness is high and some patient blogs on the internet describe some very exciting and differentiated results, Afrezza is being viewed as a very niche product. Physicians envision growing use in their practices, but not dramatically so. We believe MNKD has vastly over-estimated the commercial potential for the drug and are lowering our penetration estimates. Even our revised assumptions may be too aggressive so our discount rate is increasing from 10.5% to 11%. Our new PT is $1.50/share, which is roughly 60% down from current levels.”
As a result of this note, MNKD fell dramatically yesterday and continues on a downward trajectory today.
When Will Afrezza Start To Pick Up In The Market?
Now, the big question for investors is “When will Afrezza start seeing sales?” As much as I would like to say that it’s likely to happen tomorrow, that’s simply not the answer. The reality is that Afrezza has several roadblocks in the way that are currently being sorted. First and foremost, we can’t expect to see exorbitant amounts of sales if there is no advertising and, for the most part, there really hasn’t been any. However, the Direct to Consumer phase is now in full swing which should increase consumer awareness of the drug and eventually lead to more sales.
Another major issue that’s lending a hand to the sluggish sales on the treatment is insurance coverage. Let’s face it, most consumers simply don’t pay for medications out of pocket these days and Afrezza hasn’t found the coverage from insurance companies… yet. However, this is changing, albeit slowly, but it is changing. As a matter of fact, recent estimates say that by the end of the year we can expect about 80% of all major insurance companies to offer coverage on Afrezza in one way or another. Once insurance coverage is available, sales are expected to increase.
So, to answer the big question here, massive sales aren’t likely to happen any time soon. However, in my opinion, they are likely to happen. I’m expecting to see a decent boost in prescriptions in the first quarter of 2016 followed by even bigger gains as the year continues. I know that many investors are going to hang onto the fact that Piper Jaffray interviewed 5 doctors but, in the world of statistics, these interviews are irrelevant. First and foremost, without at least 30 pieces of data one can’t come to any solid assumptions and Piper Jaffray hit only one sixth of that mark. Aside from that, it’s important for statistics to be combed in a blind way. This means that Piper Jaffray knows nothing about the doctors other than the fact that they are doctors. In my opinion, that wasn’t the case here. While I can agree with their assessment of the fact that Afrezza sales aren’t likely to pick up this year, I have to disagree with the opinion that they will never be picked up and Afrezza will prove to be a niche product.
What Do You Think?
Do you think Afrezza will ever start realizing mass sales? Why or why not? Let us know your opinion in the comments below!
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