MannKind Surges Upward Ahead of July PDUFA Print E-mail
By Brian Wilson - Lead Contributor   
Monday, 09 June 2014 09:27

It appears that MannKind (MNKD) will soon receive FDA approval for their inhalable insulin product Afrezza.

While many speculators doubted the safety of this drug-device product in previous years, new data overwhelmingly supports the safety of this powder-based formulation of insulin for patients with type 1 and type 2 diabetes.

On April 1st 2014, an FDA advisory committee confirmed the “positivity” of the data supporting the Afrezza NDA after reviewing the overall profile of Afrezza. Their votes were overwhelmingly in favor of marketing approval: 13 to 1 in favor of approval for type 1 diabetes, and 14 to 0 in favor of marketing approval for type 2 diabetes. This leaves little doubt that Afrezza will be approved by the FDA on the upcoming PDUFA date of July 15, 2014.

Going forward, the real question to ask is whether or not this company is fairly valued at $4 billion.

Many people are under the impression that Afrezza is a slam dunk play on a 26 million patient population. However, there are many factors that could seriously inhibit the financial success of a decent reformulated drug product. One needs only to look at the failure of Exubera – an inhalable formulation of insulin that was developed and subsequently marketed by Pfizer in years 2006-2007. Despite the 11 years of R&D sunk into the development of Exubera, Pfizer dropped the product after about 1 year on the market due to atrocious sales figures and high marketing expenses.

While investors know that MannKind’s delivery device - the “Dreamboat” - will surely avoid some of the pitfalls of Exubera , but it’s concerning to see that no larger pharmaceutical companies made offers to commercialize Afrezza for MannKind in the United States. This story bears an uncanny resemblance to that of Amarin (AMRN) – another company that failed to secure any marketing agreements. We see this as an increasingly important factor in the commercial success of any new primary care prodcuts, and we worry when a smaller company decides to market its own product without any experience.

We are also concerned that MannKind has now reached a new, lofty valuation of $4 Billion. We believe that MannKind will have to generate at least $800-900 M in revenues within the first 3 years to justify this valuation, and we believe that the company will have to make a veryefficient effort to market this product to diabetics lest it burn all its cash.

Investors buying this stock should realize that MannKind is already priced for FDA approval and commercial success throughout the first few years. If Afrezza is rejected by the FDA for any reason (unlikely), or if it is a commercial flop (more likely), we believe that the downside in MNKD could be quite substantial. We also believe that the upside in MNKD is limited. The market is already anticipating an FDA approval, and most investors believe that Afrezza will hit the ground running after it enters the market this year. Because of this, it will be much more difficult for MannKind to surprise the market in a positive way going forward.

We are also seeing a parallel between MannKind and the story of Vivus (VVUS) – a company that surged after FDA approval but later struggled to market their obesity drug product despite strong clinical trial data. Adding in the similarity of the VVUS and MNKD investor base, we believe that MannKind could ultimately follow a very similar trajectory.

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