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MNKD: Buy the Rumor, Sell the News

The Afrezza buzz has hurled MannKind shares higher, but traders need to think carefully here

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Arena and Vivus Make the Point

I recall making the exact same argument about Arena Pharmaceuticals (ARNA) right as its lorcaserin drug (now Belviq) was up for the FDA’s final approval. The critics were merciless, and the fans were hyper-confident in ARNA too; check out the comments at the bottom of this article.

Well, sure enough, ARNA shares peaked at $13.50 that day — June 27, 2012 — jumping a decent 52% from the previous day’s close.

Problem: Arena Pharmaceuticals started to fall that very day, closing at $11.39, then proceeding to a low of $4.05 by late 2013. It’s never even been close to that peak of $13.50 since then. ARNA has only rivaled the $11 mark once since … briefly in January 2013.

So much for all those expectations of Arena becoming a $20 stock.

I made the same basic prediction regarding Vivus Pharmaceuticals (VVUS) in July of the same year, suggesting there was no bullishness left to tap into for the Qnexa (now Qsymia) Prescription Drug User Fee Act date with the FDA. Many fans and owners of VVUS stock “colorfully” disagreed. Yet, it happened again.

Qnexa was approved on July 17 of 2012, and VVUS shares gapped higher the next day (opening up 14%), and at one point were up 18% the day after the approval, peaking at $31.21.

It has been nothing but downhill for VVUS stock ever since. In fact, the stock began to tank the day after the post-approval surge.

These weren’t isolated incidences, either. I pointed out five other post-approval disappointments on June 20 of that year. I could find 50 more such outcomes if I really wanted to dig.

The point has been made, though … the lion’s share of any drug-approval-related gains tend to come before the actual approval.

It’s unlikely MannKind is going to be any different.

With all of that being said, one thing needs to be made clear — this isn’t a judgment call on the drug, nor is it a judgment call on the company. This is simply a judgment call on the way most traders tend to think, and a judgment call on the disconnect between the stock’s price and any semblance of “value.” Eventually, the dust will settle and the price of MNKD will reflect the underlying value of Afrezza.

In the meantime, though, it’s nothing more than a psychological chess match, and history says the bulk of any gains will be made before April 15.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media,

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