|Mixed Feelings Drive MannKind After FDA Approval|
|By Brian Wilson - Lead Contributor|
|Monday, 30 June 2014 08:09|
The retail-driven action in MannKind (MNKD) wasn’t clearly bullish or bearish after the company received an early approval for Afrezza from the FDA last Friday. Although the company has been a stellar performer throughout the last few months, many investors decided that MNKD was a “buy the rumor, sell the news” stock that was likely to decline after FDA approval.This may seem counterintuitive, but this is something we see quite often in the pharmaceutical industry. Ahead of an FDA advisory committee or PDUFA (approval/denial) date, we often see a big rally that is quickly reversed after the release of good news. This can be largely explained by the profit-taking incentives of developmental pharma investors, who consider a trade “finished” after an FDA approval.
Many traders also like to short companies with recent FDA approvals, since the market tends to exaggerate the commercial potential of new products (especially if they are not launched by large pharmaceutical companies.)
We emailed BioMedReports subscribers about this potential scenario for MNKD on June 18th, 2014:
While an FDA approval would clearly be a “positive event” for MannKind as a company that should result in a rally in the stock, it can also be a trigger for profit-taking - and even additional short selling of the stock. Because an FDA approval has already been priced into the stock, bears are confident that the stock can’t rally much further than it has already.
But despite the FDA approval, we aren’t all that enthusiastic about the commercial potential of this product.
Afrezza will be a low margin product, and it will also retain a questionable safety profile until we see new data that shows that the product is safe for long term use. Because Afrezza’s technosphere delivery platform also seems to have caused bronchospasms in patients with COPD and asthma, the product will carry this black box warning:
BOXED WARNING: RISK OF ACUTE BRONCHOSPASM IN PATIENTS WITH CHRONIC LUNG DISEASE
Acute bronchospasm has been observed in patients with asthma and COPD using AFREZZA. AFREZZA is contraindicated in patients with chronic lung disease such as asthma or COPD. Before initiating AFREZZA, perform a detailed medical history, physical examination and spirometry (FEV1) to identify potential lung disease in all patients.
The FDA will also force diabetes 1 patients to use Afrezza in combination with a long-acting insulin, meaning that the product will not actually displace injectable insulin. Because this could reduce diabetic patient compliance rates, we believe many doctors will avoid Afrezza completely until it proves itself as a “real” insulin product.
While there are millions of diabetics who could still be targeted by the Afrezza sales team directly after launch, we’ve seen a trend suggesting that primary care drug launches usually depend more on the company’s marketing strategy rather than the product itself. That is why Amarin, Vivus, and Arena Pharma performed so poorly after launching their products despite a large pool of addressable patients for Vascepa, Qsymia, and Belviq.
MannKind is playing the same game, and without a partner it seems that the story could play out the same way. But until we see Afrezza’s performance on the market, there’s no telling how the stock should behave since valuing Afrezza is a challenge. The stock is currently back above $11 per share in premarket trading though, and we’ll see if this level holds.