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MNKD Stock, Take Two: Volatility or Not, You Have to Like Afrezza

MannKind Corporation has been on a roller coaster ride the past few days. Here's what to look for when the dust settles.

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On Wednesday of last week, yours truly penned some less-than-flattering thoughts regarding MannKind Corporation (MNKD) … well, MNKD stock, not the company.

mannkind-mnkd-stockThe gist of the message was, although MannKind’s inhaled insulin, Afrezza, was highly likely to win the FDA’s approval on its original PDUFA date of April 15 — which we just learned has changed — it wasn’t a great buy at the then-inflated price.

See, based on histories of other similarly hyped drugs, not only was MNKD stock apt to hit a major peak just a few minutes following any news of the drug’s approval, but the bulk of its near-term bullish “trading” potential had already been injected into the stock’s value. There was little short-term upside left to reward MNKD newcomers.

It wasn’t a well-received idea, judging from the heated responses to my theory. There’s certainly no shortage of MannKind supporters out there who believe Afrezza could be a game-changer for the diabetes treatment world. And those supporters were anything but shy about using some … shall we say, “colorful” words to explain why I was wrong.

That’s fine — I’ve got thick skin. But, I’m not going to change my bearish thesis.

I will, however, add to that thesis making the long-term (and that’s the key distinction) bullish argument for MNKD stock on the heels of Afrezza’s approval.

Afrezza Really Is a Game-Changer

For those unfamiliar with the story, MannKind shares jumped nearly 75% last Wednesday following news that an advisory panel to the Food and Drug Administration recommended that the government’s drug authority approve Afrezza for type 1 and type 2 diabetes. If the FDA takes the panel’s advice — and it does about 75% of the time — Afrezza would become the market’s only inhaled insulin, circumventing the need for diabetics to continue poking themselves with a needle.

The marketability of such a product is clear. Even those diabetics who have grown comfortable putting a needle into their own flesh, breathing something instead is a far more palatable option … even compared to the relatively pain-free ultra-thin needles some diabetics use to inject insulin.

And in some regards, an inhaled insulin is a better-suited option for diabetics. The powder is dissolved from the lungs and absorbed into the bloodstream in 12 to 15 minutes, vs. 45 to 90 minutes for injected fast-acting insulins. While the FDA’s Endocrinologic and Metabolic Drugs Advisory Committee was concerned about Afrezza’s safety and tempered efficacy compared to injected insulins, the decided outcome of the panel’s voting makes it pretty clear that the upside of Afrezza at least matches (if not exceeds) the downside.

At stake for MannKind is an insulin market that was worth nearly $21 billion in 2012, and an insulin market that’s expected by some to be worth $32 billion by 2018.

While, incredibly enough, there are no clear market-based studies that would indicate how much of that demand diabetics would direct toward an inhalable insulin, the blockbuster-level projections that were being thrown around the first time Afrezza was up for approval ranged anywhere from $2 billion to $5 billion per year. That’s a relatively modest and achievable 15% of the total insulin market, particularly given that the drug could mean the end of needles altogether for many diabetics.

And, compared to MannKind Corporation’s current $2.5 billion market cap, that kind of revenue potential justifies an even higher MNKD stock price down the road.

Potential Risks to MNKD Stock

With all of that being said, no good discussion of MannKind and Afrezza can avoid pointing out that this isn’t the market’s first inhalable insulin.

Pfizer (PFE) brought its inhalable insulin, Exubera, to the market in early 2007. By late 2007, after only producing $12 million in sales during the first three quarters of that year, Pfizer pulled the plug on the program. It wasn’t even selling close to well enough, with no real hope for improvement.

Explanations for Exubara’s failure have been numerous, ranging from the ridiculous size of the inhaler to the cost of the drug compared to its efficacy. More specifically, the delivery device for Exubara was about a foot long (anything but convenient), and Exubera cost about 30% more than the going rate for insulin treatments at the time … still affordable, but tough to justify. Insurance companies weren’t jumping at a chance to pay a premium for the treatment either.

While Exubera was ultimately a failure, Afrezza largely solves many of the problems that led to Exubara’s demise.

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Article printed from InvestorPlace Media,

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