Beleaguered biotechnology firm MannKind Corporation (MNKD) is slated to release its fourth-quarter earnings report ahead of the open on Monday.
While Wall Street will certainly be watching the numbers, it’s the future of its inhalable insulin drug Afrezza that will garner the most attention. As such, guidance will be the key to MNKD stock’s post-report action.
Afrezza, MannKind’s purported “blockbuster” inhalable insulin product was the first of its kind. The drug, however, failed repeatedly to meet sales expectations. As a result, marketing partner Sanofi (SNY) bailed, leaving MNKD to fend for itself in marketing Afrezza.
With Sanofi out of the way, MannKind has turned to a partnership with a third-party to create a slew of specialized diabetes care centers to directly treat diabetes. Even better, the partnership comes at no cost to MannKind.
While there is plenty of potential upside for MNKD if the company can build support for Afrezza, the process will be much slower lacking a major marketing partner. Picking up on this, most analysts have abandoned MNKD stock. According to data from Thomson/First Call, MannKind has attracted just two buy ratings, compared to one hold and four sell ratings. At $3.05 per share, the consensus shows some hope for MNKD stock — a premium of 125% to the MannKind’s current perch.
Elsewhere, short sellers are beginning to lessen their grip. Following a 10% decline in the most recent reporting period, some 124 million shares of MNKD stock remain sold short.
Click to EnlargeThis mass of bearish bets represents 48% of its total float, and could provide a considerable short-squeeze play on any positive guidance, especially where Afrezza is concerned.
Turning to MannKind’s options configuration, we find activity typical of low dollar stocks. Most of MNKD’s open interest is centered on the $1.50 and $2 strikes through April expiration.
What’s more, the March/April put-call open interest ratio for MNKD stock comes in at 1.86, with puts nearly doubling calls among short-term options. This ratio drops to rather neutral 1.05 for the March series, however, hinting that short sellers may be using calls as insurance against a possible earnings-induced rally.
Overall, March implieds are pricing in a potential post-earnings move of about 7% for MNKD stock. This places the upper bound at $1.34, while the lower bound lies at $1.16.
MannKind has come roaring back from the 64 cent low it hit in January, but the stock still has a long way to go before challenging the $2 strike. That said, upside potential on surprise guidance 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 rally might want to consider entering an April $1/$1.50 bull call spread. At last check, this spread was offered at 30 cents, or $30 per pair of contracts. Breakeven lies at $1.30, while a maximum profit of 70 cents, or $70 per pair of contracts, is possible if MNKD closes at or above $1.50 when April options expire.
Put Buy: Those traders expecting a reversal from from MannKind earnings might want to consider siding with the bears by purchasing an April $1.50 put. At last check, this put was offered at 54 cents, or $54 per pair of contracts. Breakeven lies at 96 cents.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
