MannKind Corporation (MNKD) Is A Diamond In The Rough

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MannKind Corporation (NASDAQ: MNKD)

MannKind Corporation has been the talk of biotech for quite some time now. Those who like it love it and those who don’t like it hate it; which is sparking quite a strong debate around the stock. Today, we’ll take a look at both the bullish and the bearish arguments with regard to the stock and attempt to determine what we can expect to see moving forward.

Starting With Afrezza

First off, I’d like to start with Afrezza since this is where most of the debate lies. For those of you who aren’t aware, Afrezza is an insulin produced by MannKind. However, unlike other insulin options, Afrezza doesn’t require the use of needles. Instead, patients have the ability to inhale the necessary insulin; freeing them of their attachment to the needle. Nonetheless, there’s been a strong debate with regard to the potential success of the drug…

  • Bears Don’t Think Afrezza Will Do Well – Afrezza has been in pre-launch phase for quite some time now; and unfortunately it’s sales have come in far below Wall Street expectations. Therefore, MNKD bears are pointing to the Afrezza pre-launch as proof that the drug isn’t quite as profitable as the bulls think it is.

  • Bulls Love Afrezza – The bulls on the other hand argue that there has been no advertising. Without advertising, how could anyone expect to see exorbitant sales? They also point to the fact that in a survey conducted by Jefferies, 65% of endocrinologists that responded said that they have heard of the inhaled insulin and plan on using it in the future. Finally, bulls are confident that once the Direct-to-Consumer phase starts, consumer awareness will climb; leading to more sales of the insulin.

Debt Is A Key Factor In This Debate

Another key factor in the debate is the $100 million in convertible debt that will be maturing in August 15th. Here’s the argument with regard to that…

  • Bears Fear Dilution – When it comes to the debt owed, bears argue that MannKind stock will have to climb to $6.80 per share before maturity to avoid dilution. If this doesn’t happen, they argue that the value of the stock will automatically fall on August 15th when the debt matures.

  • Bulls Aren’t Concerned – However, bulls are seeing the debt in a bit of a different light. While the best case scenario is that MNKD climbs to $6.80 before maturity and the debt is converted to equity, they also realize that there are a few different ways MNKD can avoid dilution with regard to the debt. In reality, there are two options outside of share price growth that would avoid dilution. First, MannKind can use a combination of cash on hand, the $30 million in borrowing capacity available at Mann Group and the $50 million ATM to get rid of the debt entirely. Another option would be to refinance the debt; doing so at much better terms considering that the company has a much stronger financial position today than it did years ago. Therefore, as Mathew Pfeffer has stated time and time again, dilution should not be a cause for concern.

Technosphere Is Also Very Important To MNKD Bulls

Finally, bears haven’t said much about technosphere, but the bulls realize the value potential associated with the technology. Technosphere is a proprietary technology developed by MannKind. It is the technology that made an inhaled insulin possible; and more importantly, the company plans to develop more medication options using this technology. In the long run, technosphere is also likely to be incredibly profitable.

So, What Can We Expect?

In the short term, expectations really aren’t that great. Nonetheless, MannKind bulls know that investing in MNKD is a long term endeavor. While Afrezza may take some time to become the goose that lays the golden egg and there are debts that could be concerning, these aren’t a concern to MNKD bulls. They know that Afrezza is likely to become incredibly popular in the long run; leading to growth. Also, the debt isn’t very concerning either as MNKD has more than one way to solve the issue without dilution. Overall, MNKD has massive long term upside potential. In my opinion, it may be a good idea to get in on the stock early while the price is still cheap.

What Do You Think?

Where do you think MNKD is headed and why? Let us know in the comments below!

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1 COMMENT

  1. Long time bull here (in at $2.50 more than 2 years ago): yes it will take time to “grow” scripts but judging from near-universal enthusiastic praise from current users, much lower than expected Hba1c levels and, so far, no reported hypoglyemic issues, once Afrezza gets a toe-hold, the stock will rise markedly. Might take 6 months, might take 3-4 years but up it goes. By this time next year insurance issues will be a thing of the past (especially as Afrezza users demonstrate improved BG control and better compliance and fewer ER trips for hypos in the night). I expect to see better FDA labels reflecting users experiences “in the wild” that were not part of the controls in the clinical trials. There are already sporadic reports of a few doctors prescribing for adolescents and a 2u cartridge is under discussion, eventually for pediatric use. On top of all of this, Afrezza is proof-of-concept for the Technosphere platform which can and will be adapted for other, non-diabetes conditions. For now the biggest hurdle I see is nudging doctors and patients acclimated to needles from a couple thousand needlesticks a year to switching to once a day long-lasting insulin plus inhaled as necessary Afrezza.

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