If you happened to get into a piece of Mannkind Corp. (MNKD) anytime before Friday’s close, then congratulations — you’ve made some money on the heels of the approval of Afrezza.
You might want to think about locking in your profits soon, however.
As in today.
While MNKD is causing quite a buzz within the stock-trading community, odds are petty good we’ve already seen the best of what this stock has to offer. From here, there’s much more risk than reward.
That’s certainly not going to be a popular stance on the stock’s future, considering how rabid its supporters are. It’s that intense optimism surrounding Mannkind and its inhaled insulin Afrezza, however, that makes MNKD stock so vulnerable to a sizable pullback here.
Mannkind Finally Wins the Afrezza War
On the off chance you haven’t heard, after nearly a decade of trying, Mannkind’s Afrezza has finally been approved by the FDA.
It was the outcome widely expected by investors, judging from the 60% run-up we saw unfurl for MNKD over the course of the two months leading up to Friday’s announcement.
Buying into the stock right in the shadow of an approval, however, might be a flawed strategy.
How so? While it makes superficial sense that most observers would wait until an approval was in hand before pulling the trigger, the reality is, most investors willing to take a shot on a post-approval MNKD likely also were willing to take a shot on a pre-approval MNKD.
In other words, there probably isn’t a significant number of buyers (if any) left to bid Mannkind up at this time.
In fact, odds are alarmingly high that there are more would-be sellers ready to come out of the woodwork at a moment’s notice.
We’ve Seen It All Before
Just for the record, no, this isn’t a judgment call on the marketability of Afrezza, and no, I don’t have a short position in MNKD. I’ll even go as far as to say I believe Mannkind could be a compelling long-term investment once all these volatility kinks are worked out.
What happens in the meantime, however, could be brutal.
See, trading this stock has nothing to do with the company’s underlying value. It hasn’t in a while. Trading MNKD has been little more than a psychological chess match for month … a game of stock-market chicken, as traders jockey to figure out how other traders are going to see and value the stock at some point in the future.
The bitterly ironic part of that reality? History has shown that hyped stocks with large followings tend to implode right when things seem amazingly bullish, as they do for Mannkind now that Afrezza was given the green light.
You don’t have to go too far back in time to see how the peak in euphoria — sparked by a crowning achievement — has a funny way of also marking the beginning of a major pullback for stocks.
Take Vivus (VVUS) as an example. The FDA approval of its weight-loss drug Qsymia in July 2012 was hailed by many as the beginning of an amazingly bullish era for VVUS. As it turns out, it was the beginning of a train wreck for VVUS. The stock peaked in the $30s that very day, and spent the next two years headed back to this May’s low of $4.56.
Avanir Pharmaceuticals (AVNR) is another stock that was all the rage immediately following its October 2010 approval of Nuedexta, for pseudobulbar effect, but lost a dramatic amount of ground beginning that very day. Shares jumped from $2.42 to $5.67 on the news, but were trading at less than $2 per share by the end of the next year.
AVNR has since made its way back to their post-approval peak, but is struggling to move any higher. But the market sure was stoked about Nuedexta at the time, willing to pay a premium on the premise of its potential.
And there are plenty more examples where those came from.
Again, it’s nothing personal against Mannkind and anyone who has a stake in MNKD stock right now. I like Afrezza, and I while the term “game-changer” might be a little strong, I firmly believe it’s going to find a market where Pfizer’s (PFE) Exubera couldn’t.
But that’s not going to prevent the stock from selling off once all the current owners start to realize there aren’t many buyers left on the sidelines. They’re all already in the game.
The one potential catalyst could be the oft-discussed appearance of a deep-pocketed partner and/or a suitor. Even then, however, that could be a little too far down the road to sidestep the profit-taking pressure that could develop at any moment now.
No, it’s probably not the way things should be. But it’s the way things are in the world of trading.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.