Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN) agreed to buy all outstanding shares of Synageva Biopharma Corp (NASDAQ:GEVA) stock, a biotech with one unapproved orphan drug in its pipeline, for $8.4 billion today.
Could MannKind Corporation (NASDAQ:MNKD) stock one day enjoy such a fate?
The $230-per-share offer from ALXN for GEVA stock was more than double yesterday’s $95.87 close, and sent shares roaring 114% higher in midday trading.
Admittedly, I own MNKD stock myself, so I am hoping and praying that it gets snapped up by a larger biotech someday soon.
One might point out that the “hope and pray” strategy has yet to mint a single billionaire, and in fact cheapens the very term “strategy.” One would be correct.
While I feel it’s unlikely to happen soon, I still think MNKD can do its best GEVA stock impersonation and get acquired at a substantial premium sometime in the not-too-distant future.
Early-Stage Biotechs With Valuable Assets
First, let’s take a quick look at why Alexion shelled out $8.4 billion for Synageva. ALXN is an extremely focused biotech company that has managed to make a killing on one product, Soliris, which treats two extremely rare diseases, paroxysmal nocturnal hemoglobinuria (PNH) and atypical hemolytic uremic syndrome (aHUS).
Because no other competitors were willing to spend time and money to develop treatments for these small addressed markets, Soliris is the only real treatment, and it costs about $500,000 a year.
Alexion acquired GEVA stock because Synageva also has another so-called “orphan drug” in its pipeline that Alexion wants the rights to. It’s not even FDA approved yet, but it’s widely expected to be approved later this year. Synageva’s drug is called Kanuma, it treats a disease called Lysosomal Acid Lipase Deficiency (LAL D), and it’s going to cost a fortune.
Mannkind wouldn’t fit well into Alexion’s portfolio, because its inhalable insulin drug, Afrezza, controls blood sugar levels for both type 1 and type 2 diabetes. And unlike the ultra-rare diseases mentioned above, diabetes is an epidemic. Also in contrast to GEVA’s Kanuma, Afrezza is FDA-approved; it hit the market in February.
Without any sales to its name before this year, rumors of a MNKD buyout swirled for years while Afrezza was in development and awaiting approval. As it turns out, running clinical trials and researching and developing a groundbreaking new drug isn’t cheap. Instead of a buyout, it found a partner in Sanofi SA (ADR) (NYSE:SNY), who paid MNKD $150 million plus up to $775 million in incentives to market and sell the product in exchange for a 65% cut.
Initial Afrezza sales have not been stellar; it only netted $1.1 million in U.S. sales in its first seven weeks on the market, and some analysts have gone so far as to fallaciously insinuate its weak debut played any meaningful role in the “disappointing” performance of Sanofi’s diabetes unit, which hauled in €1.84 billion in the first quarter.
MNKD Could Be Next … Eventually
Sanofi itself could buy out MNKD, forget about the 35% royalty, and turn up the heat on its sales force. After all, a big reason Afrezza isn’t yet popular is that people don’t even know it exists. A handheld inhaler that delivers insulin instead of a needle? It sells itself once the market becomes educated.
Then again, corporate America is so flush with cash right now that another player could swoop in and acquire MNKD, too. If companies aren’t buying back their own stock they’re buying someone else’s. Corporate cash as a percentage of current assets has doubled, going from 15% to 30% between 2000 and 2014.
At the end of the day, let’s be honest: I don’t have a crystal ball and I don’t know how to pick the next GEVA.
But with interest rates still in the trenches and the M&A boom in full-swing, MNKD could legitimately command a $3.5 billion price tag — double its current value — especially in light of today’s $8.4 billion deal for a company without a single FDA-approved drug.
As of this writing John Divine was long MNKD stock and long Jan 2016 MNKD $7 call options. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
