By Danny Horgan –
Depending on who you ask, MannKind ($MNKD) is either world’s easiest short or a sure-fire buy and hold, bound to give you returns so big you’ll never have to work again.
It’s easy to see both sides of the argument. With roughly a 34.6% short share ratio — a ratio so high that many have been complaining their brokers have no shares left to short — and an enormous market cap exceeding roughly 2.67B, it almost seems like common sense that $MNKD headed downhill. But then there’s the endless upside. With the help of French pharmaceutical juggernaut Sanfoi ($SNY), $MNKD launched their long-awaited inhaled insulin Afrezza in early February. And while first-weeks script numbers have yet to give an indication of how well the drug will be received, the idea of the $MNKD-$SNY team capturing even 10% of the diabetes market share (potentially much more) through Afrezza has many investors pouring their life savings into the company. (There are also all those shorted shares — can you say short squeeze?)
But the success of Afrezza and the direction of $MNKD’s pps are only part of the fascinating trends surrounding this stock. The polar-opposite sentiments behind both bears and bulls have been so incredibly feverish these past few months that those outside biotech investing are being given an almost cartoonish look at the daily battles that go on within the sector.
What makes the biotech sector exciting is its extreme volatility. The journey drugs take from their initial development to your local Walgreens Pharmacy is so long and intensely complicated that make-or-break news on a biotech company can strike around the clock, often for reasons not even the most diligent investors see coming. The lure of this type of rapid movement is obvious. I struck biotech gold for the first time in December when I bought shares of Parksinon’s Disease drug developer Nueroderm ($NDRM) a little less than a week before its historic breakout. Over the course of two trading days, $NDRM shot from $5.90 to $19.07 a share, shaking up the investing world and giving me my best win, by far, of 2014.
$NDRM News on positive latest study out by the “end of 2014″, according to press release.Time to buy is now!
— Danny Horgan (@DannyHorgan) December 24, 2014
But I’m far from alone on the list of big winning biotech investors. Many skilled traders make huge profits every day by shorting overbought biotech companies, inflated from the hype of endless news. Biotech investing all stars can distinguish between truly good news (signs a company will actually make money) and empty press releases. And for many, picking a stock that will tank is easier than spotting a rising company. With big money comes big emotion, and that’s exactly what we’ve been seeing on both sides of the $MNKD coin. Conceivably (though unlikely), $MNKD could have a $NDRM-like day, tripling in value over the course of several short-squeezing hours. But the stock could also see a large dip, especially if Afrezza fails. So naturally, the battle lines have been drawn between bulls and bears, and people of all ages and economic backgrounds have taken to Twitter, Stocktwits, and the Yahoo message boards to argue incessantly over where the stock is headed. This, my friends, is the daily world of biotech investing online.
— John Welsh (@johnwelshtrades) February 18, 2015
A Matter of Good vs Evil?
Perhaps the most interesting sentiment that’s been raised with the launch of Afrezza is the bulls’ argument that shorting the stock is immoral, far beyond trading standards. Obviously there is a bias from some $MNKD longs looking to make a quick buck, but where Afrezza could potentially help so many diabetics, the argument is worth examining objectively.
Morally, trading simply comes down to the ethics of any competition. If you’re going to play the game, you have to be ready to lose. But when the competition of trading filters into the outside world, how much is winning really worth?
If Afrezza is a failure, $MNKD will likely tank, and the countless shorts will undoubtedly celebrate their victory with fist fulls of cash and endless “I-told-you-so” tweets. But the money will occur simultaneously with the suffering of millions of type 2 diabetes patients, who will have to wait even longer for a more convenient insulin delivery method. Shorts may argue that since the drug was going to fail anyway, they may as well profit from predicting the downfall. But there’s still something morally questionable about betting against the success of a product made to help people suffering from a life-worsening condition. Alfred Mann, founder of $MNKD, is already a billionaire (and 89 years old), so it’s not like he sees Afrezza as a way to get even richer. The product is, at least some say, one of his final gifts to the world after an extraordinary life of helping others. Why would anyone want it to fail?
But what about that other short argument — that shorting $MNKD won’t effect how well Afrezza does on the market? If only the real world worked that way. It’s no secret that new drugs can live or die by word of mouth. And with bears flooding the Internet to bash the $MNKD company, Afrezza’s credibility gets called into question. Even if you aren’t a basher, every time you add to the growing short share ratio, you put pressure on someone else to publicly bash the drug in hopes of preventing a short squeeze.
What kills me about $MNKD shorts is that even if they believe the drug won’t be helpful to diabetics (which, unless they have a medical degree, they shouldn’t have an opinion on anyway), the bashing has gone on well before Afrezza has even had a chance to show its worth. The bottom line is shorts obviously care more here about being right than they do a new drug succeeding. I don’t have diabetes, but if I did, that would make me pretty mad.
$MNKD’s market cap may be (very) high and there may be lots of people looking to pump the stock without actually believing in the company, but to be frank, I don’t care. Let the stock trade at $110 pps if it means Afrezza actually gets a chance to get off the ground. Diabetics need the help, and eliminating a chance for that help due to stock trading is pretty sickening.
Shorts have plenty of other stocks to bet against. And being right is not worth the price of more diabetic suffering.
Disclaimer: I currently have no $MNKD shares. Please send comments to DannyHorgan2@gmail.com or my Twitter @DannyHorgan