Biotechnology specialist MannKind Corporation (MNKD) will step into the earnings limelight ahead of the open this Monday. While Wall Street will certainly keep an eye on the company’s third-quarter profit — analysts expect a loss of 7 cents per share, up from a loss of 9 cents last year — most MNKD stockholders will be keying on Afrezza sales, guidance and the company’s drug pipeline.
Afrezza, the first major inhalable insulin product, was expected to be a major blockbuster for MannKind. In fact, MNKD stock soared to a recent high of $11.48 shortly after the FDA approved the treatment.
However, prescriptions and sales have been lackluster. MannKind, and marketing partner Sanofi SA (SNY), attribute the slow start to doctor unfamiliarity and a lack of training with Afrezza, but a stagnation in prescriptions issued is beginning to turn the focus toward marketing.
Weak Afrezza market adoption is also weighing heavily on MNKD stock sentiment. Among analysts, the stock has garnered a split outlook. Specifically, data from Thomson/First Call reveals three “buys,” two “holds,” and three “sell” ratings. However, the consensus price target of $6.50 per share reveals that some analysts are hopeful that Afrezza sales will eventually take off to some degree, but at a 71% premium to MNKD’s current perch, this lofty target also leaves room for potential cuts.
Elsewhere, short sellers are having a field day with MNKD. Despite a decline in shorted shares during the most recent reporting period, some 127 million shares of MNKD stock remain sold short. This wealth of bearish bets represents a whopping 48% of MNKD’s total float, and could provide a considerable short-squeeze play on the stock if Afrezza ever starts showing its expected market potential.
Judging by MNKD’s options configuration, short sellers won’t be caught completely off guard. Currently, the November put/call open interest ratio for MNKD stock comes in at 0.74, with calls easily outnumbering puts among short-term options. This ratio drops to 0.62 for the weekly Nov. 6 series, hinting that short sellers may be using calls as insurance against a possible earnings-induced rally.
Click to Enlarge Overall, weekly Nov. 6 series implieds are pricing in a potential post-earnings move of nearly 14% for MNKD stock. This places the upper bound at $3.98, while the lower bound lies at $3.02.
The $4 and $3 levels have acted as resistance and support, respectively, for the better part of the past two months, and implieds pointing toward these limits is to be expected. That said, upside potential on a surprise could exceed implied pricing if short sellers are forced to cover their positions.
2 Trades for MNKD Stock
Call Spread: Traders looking to speculate on a MNKD earnings surprise might want to consider entering a November $3.50/$4 bull call spread. At last check, this spread was offered at 12 cents, or $12 per pair of contracts. Breakeven lies at $3.88, while a maximum profit of 38 cents, or $38 per pair of contracts, is possible if MNKD closes at or above $4 when November options expire.
Put Sell: Traders expecting more of the same from MannKind earnings might want to consider siding with the bears and open a November $3/$3.50 bear put spread. At last check, this spread was offered at 29 cents, or $29 per pair of contracts. Breakeven lies at $3.21, while a maximum profit of 21 cents, or $21 per pair of contracts, is possible if MNKD closes at or below $3 when November options expire.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
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