Nate’s Notes 2/16/16: How Does The MannKind Story
Feb 16, 2016 18:10:19 GMT -5
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Post by lakers on Feb 16, 2016 18:10:19 GMT -5
How Does The MannKind Story Compare? 2/16/16
*** The February issue of Nate’s Notes was published for subscribers earlier this month, but is now available for the general public below; however, please note that all recommendations are as of February 5 and therefore may now be out of date. ***
www.notwallstreet.com/how-does-the-mannkind-story-compare-21616/
Excerpts follow.
My Latest Thoughts On MannKind
Though the list of topics and rumors that could be discussed is virtually endless, I want to use this month’s update to first touch upon some of the more pertinent things that came up in the company’s conference call last week, and then to spend some time putting the current situation into perspective for everyone.
First off, it should be noted that while MannKind and Sanofi are hoping to have everything wrapped up by April 5th, CEO Matt Pfeffer noted that it is a very complex situation to unravel, and thus, it may take a bit longer before all the details are worked out; unfortunately, this means that MannKind’s hands are tied until then with regards to actually implementing any changes in the strategy for Afrezza going forward (including filing for approval in foreign jurisdictions) since Sanofi is still the holder of all rights associated with the commercialization and distribution of Afrezza.
That being said, once Afrezza has been fully returned to MannKind, Pfeffer confirmed that while the company is exploring the possibility of finding new partners who may be interested in adding Afrezza to their own product line-ups, MannKind is also moving forward with plans to market and sell Afrezza on its own (at least in the U.S. as part of the initial “next steps” the company is planning to take).
Moving on to other applications of the Technosphere (TS) platform, I am afraid that very little new information was revealed about the “mysterious” Receptor Life Sciences (RLS), the Seattle-based company that recently signed an agreement with MannKind to utilize the TS platform for the development of a number of proprietary compounds that are being worked on by RLS.
As you may or may not know (depending how closely you follow the story), the folks behind RLS have chosen to keep their identities confidential for the time being, though Pfeffer was able to confirm that they are a completely separate entity from Al Mann and MannKind (rumors abound that Paul Allen is behind RLS, but, as far as I know, no definitive evidence has been found yet to confirm that rumor). In addition, Pfeffer also acknowledged that one of MannKind’s most prominent scientists is now the Chief Science Officer at RLS (and has been there for awhile, it seems).
Along with the above, MannKind also spent a good portion of the call providing an update on the projected timelines for development of the TS applications that the company has been working on for awhile now, and management also took some time to remind folks of just how deep the company’s patent portfolio actually is.
And, now that you’re up to speed on some of the main highlights to come out of last week’s conference call, I hope the following discussion will help you best figure out how to best approach the story from an investment perspective…
First off, as indirectly mentioned above, I think it is important to recognize that “fear” and “greed” really are the two primary forces that drive stock prices over shorter time-horizons, and this is especially true when it comes to the biotech sector. In addition, I believe it is worth noting that the stocks that overshoot by widest margins at one end of the spectrum are often the ones that overshoot by an equally large margin on the other end of the spectrum as well.
And, as you might imagine, if I felt that the stock was undervalued when it had a market cap of $2 billion a mere six or seven months ago, you know I consider it to be extremely undervalued with a market cap of just over $400 million today (and that’s after already doubling off the extremely, extremely undervalued market cap of just $200 million that was touched last month right after it was announced that MannKind and Sanofi would be parting ways!).
I know it is hard to battle your emotions when it comes to evaluating stocks that have done nothing but hurt your portfolio, but I hope everyone will keep the following things in mind as they try to figure out what to do next…
First off, as always, please do not own more than you are comfortable losing – there are no sure things in the stock market, and we are far from being “in the clear” when it comes to the MannKind story.
Second, while short sellers like to stir up fears that the company will soon be filing for bankruptcy (which is, admittedly, a possibility), there are plenty of other routes the company could take that would be both easier and less painful than a bankruptcy filing… and thus, I am not terribly concerned that this fear will come to pass.
However, I DO have some concerns (and would be remiss if I didn’t point out) that rather than sink into bankruptcy, the company could be taken private “for a song”… and though such a turn of events would be both nefarious and completely out of character for Al Mann, it probably ranks the highest on my list of “things to worry about when it comes to the MannKind story.”
Having said that, one of the things I hear most often from new subscribers is “I really wish I would have been a subscriber when you first recommended Celgene (or Apple… or Illumina… etc.),” and, while I cannot promise that the MannKind story is going to work out as well for us as those others have (and with the recognition that we have been in the stock for awhile now, so many of us are “averaging down” at current prices rather than starting new positions), I do want to remind folks of what was going on when we first got involved in some of those stocks in order to help give you some confidence that there may, in fact, be some hope for MannKind after all.
Though I had been following Celgene for a number of years before recommending it in the newsletter, it had spent much of that time as a bioremediation company focused on using microbes to clean up toxic waste sites; however, the management team at Celgene had recently come across new research that suggested that the infamous drug thalidomide was showing potential as both a treatment for cachexia (a “wasting syndrome” associated with a number of illnesses, especially AIDS), as well as certain types of cancers.
Not surprisingly, the stock suffered greatly as everyone who had been owning it to be involved in bioremediation had to decide whether to sell it or to stay involved as the company began the transition over to being a pharmaceutical company – and, not just any pharmaceutical company, mind you, but one with no experience selling pharmaceuticals… that was going to attempt to break into the highly competitive cancer arena… by attempting to “bring back thalidomide,” a drug that had been banned for causing birth defects in just about every instance that it had been prescribed for pregnant women while it was on the market… and it was going to try and get into the business on its own, with NO partner.
When I first added Celgene to the newsletter in November 1995, despite already being up close to 150% for the year, it still had a market cap of just $87 million… and it went on to spend a number of years testing our patience while trading back and forth between $5 and $12 (or roughly 20 cents and 50 cents in today’s split-adjusted stock!) before it finally took off. However, though it took time, all of the skeptics on Wall Street who had been openly mocking the company’s plans to both “go it alone,” as well as attempt to market a product with a “black box warning” on the label that was perhaps the worst the world had ever seen (Celgene actually developed and patented a whole new method for doctors to discuss and address the risks of such a product with their patients as part of getting the product approved!), eventually came around as the results being obtained with the product began to speak for themselves… and the rest is history.
Apple Wired CoverAlong similar lines, though I had been familiar with Apple for many years, it was not until June 1998 that I finally added it to the newsletter (after it had already doubled off its lows, mind you!). At the time, it had also become a bit of a joke on Wall Street due to the success being achieved by the likes of Dell, Compaq, and other companies that were selling PCs running Microsoft’s Windows operating system. Not only was Apple’s market share dwindling to low single digits in a hurry, the company was also desperately strapped for cash in the ‘96-’98 time period, and many investors were concerned it would have no choice but to file for bankruptcy… and because I happened to come across it while cleaning out my garage this week, I thought it would be fun to share with you the cover of the June 1997 issue of WIRED magazine. As you can see, the outlook at the time was “grim,” to say the least!
Of course, thanks to the fact that Steve Jobs returned to Apple and helped get the company back on track towards only putting out products that were head-and-shoulders above anything else on the market when it came to user experience and satisfaction levels, not only did the company survive, but it went on to become even more successful than just about anyone could have imagined due to some variation of the maxim that “happy customers make for happy shareholders.”
As it stands (and again with the acknowledgement that the successes of Apple and Celgene in no way guarantee the success of MannKind), I want to remind those of you who have come this far that many of the greatest investments of all-time have come from periods of market inefficiency like the one MannKind is experiencing right now. If you are new to the newsletter, I believe you are being given a once-in-a-lifetime chance to start a position… and if, like many of us (myself included), you have ridden the stock down from higher prices but are still involved in the story, the mathematics of the situation strongly suggest that you should be taking advantage of the situation to “average down” if you’re able to (and again, only to a level that will still allow you to still sleep easily at night).
Will it be a challenge for MannKind to sell Afrezza without a partner? Yes – but it’s been done by others… and given the nature of diabetes and associated support groups, I think it will be a significantly easier task for MannKind to sell insulin on its own than it was for Celgene to sell thalidomide, for example! And, of course, if the company does sign up one or more international partners (especially in territories where FDA approved products can be fast-tracked), the rates of sales growth will likely be that much more impressive as word starts to spread.
As mentioned before, while I can’t tell you why Sanofi had such a hard time selling Afrezza, I can tell you that I am more convinced than ever that Afrezza will eventually become the mealtime insulin of choice, especially as more and more diabetics start to monitor their blood sugar levels in real-time (a trend that is already picking up steam as continuous glucose monitors become less and less obtrusive and easier and easier to use)… and, at least for now, owning MannKind stock is the only way to invest in the story.
Of course, there’s much more to the story than just Afrezza, and with MannKind’s old science officer (perhaps the world’s leading authority on TS?) now in charge of the work being done at RLS, it shouldn’t be long before a) development milestones start being hit, and, perhaps more importantly, b) the idea that TS is really just a platform that will eventually be tapped to improve the delivery of many, many different compounds will start to be validated.
Yes, it has been a bumpy ride… and, yes, there is still plenty of risk in the story. However, as mentioned above, if you’re still following along, history suggests that you should be taking advantage of the current situation to add to your position.
*** The February issue of Nate’s Notes was published for subscribers earlier this month, but is now available for the general public below; however, please note that all recommendations are as of February 5 and therefore may now be out of date. ***
www.notwallstreet.com/how-does-the-mannkind-story-compare-21616/
Excerpts follow.
My Latest Thoughts On MannKind
Though the list of topics and rumors that could be discussed is virtually endless, I want to use this month’s update to first touch upon some of the more pertinent things that came up in the company’s conference call last week, and then to spend some time putting the current situation into perspective for everyone.
First off, it should be noted that while MannKind and Sanofi are hoping to have everything wrapped up by April 5th, CEO Matt Pfeffer noted that it is a very complex situation to unravel, and thus, it may take a bit longer before all the details are worked out; unfortunately, this means that MannKind’s hands are tied until then with regards to actually implementing any changes in the strategy for Afrezza going forward (including filing for approval in foreign jurisdictions) since Sanofi is still the holder of all rights associated with the commercialization and distribution of Afrezza.
That being said, once Afrezza has been fully returned to MannKind, Pfeffer confirmed that while the company is exploring the possibility of finding new partners who may be interested in adding Afrezza to their own product line-ups, MannKind is also moving forward with plans to market and sell Afrezza on its own (at least in the U.S. as part of the initial “next steps” the company is planning to take).
Moving on to other applications of the Technosphere (TS) platform, I am afraid that very little new information was revealed about the “mysterious” Receptor Life Sciences (RLS), the Seattle-based company that recently signed an agreement with MannKind to utilize the TS platform for the development of a number of proprietary compounds that are being worked on by RLS.
As you may or may not know (depending how closely you follow the story), the folks behind RLS have chosen to keep their identities confidential for the time being, though Pfeffer was able to confirm that they are a completely separate entity from Al Mann and MannKind (rumors abound that Paul Allen is behind RLS, but, as far as I know, no definitive evidence has been found yet to confirm that rumor). In addition, Pfeffer also acknowledged that one of MannKind’s most prominent scientists is now the Chief Science Officer at RLS (and has been there for awhile, it seems).
Along with the above, MannKind also spent a good portion of the call providing an update on the projected timelines for development of the TS applications that the company has been working on for awhile now, and management also took some time to remind folks of just how deep the company’s patent portfolio actually is.
And, now that you’re up to speed on some of the main highlights to come out of last week’s conference call, I hope the following discussion will help you best figure out how to best approach the story from an investment perspective…
First off, as indirectly mentioned above, I think it is important to recognize that “fear” and “greed” really are the two primary forces that drive stock prices over shorter time-horizons, and this is especially true when it comes to the biotech sector. In addition, I believe it is worth noting that the stocks that overshoot by widest margins at one end of the spectrum are often the ones that overshoot by an equally large margin on the other end of the spectrum as well.
And, as you might imagine, if I felt that the stock was undervalued when it had a market cap of $2 billion a mere six or seven months ago, you know I consider it to be extremely undervalued with a market cap of just over $400 million today (and that’s after already doubling off the extremely, extremely undervalued market cap of just $200 million that was touched last month right after it was announced that MannKind and Sanofi would be parting ways!).
I know it is hard to battle your emotions when it comes to evaluating stocks that have done nothing but hurt your portfolio, but I hope everyone will keep the following things in mind as they try to figure out what to do next…
First off, as always, please do not own more than you are comfortable losing – there are no sure things in the stock market, and we are far from being “in the clear” when it comes to the MannKind story.
Second, while short sellers like to stir up fears that the company will soon be filing for bankruptcy (which is, admittedly, a possibility), there are plenty of other routes the company could take that would be both easier and less painful than a bankruptcy filing… and thus, I am not terribly concerned that this fear will come to pass.
However, I DO have some concerns (and would be remiss if I didn’t point out) that rather than sink into bankruptcy, the company could be taken private “for a song”… and though such a turn of events would be both nefarious and completely out of character for Al Mann, it probably ranks the highest on my list of “things to worry about when it comes to the MannKind story.”
Having said that, one of the things I hear most often from new subscribers is “I really wish I would have been a subscriber when you first recommended Celgene (or Apple… or Illumina… etc.),” and, while I cannot promise that the MannKind story is going to work out as well for us as those others have (and with the recognition that we have been in the stock for awhile now, so many of us are “averaging down” at current prices rather than starting new positions), I do want to remind folks of what was going on when we first got involved in some of those stocks in order to help give you some confidence that there may, in fact, be some hope for MannKind after all.
Though I had been following Celgene for a number of years before recommending it in the newsletter, it had spent much of that time as a bioremediation company focused on using microbes to clean up toxic waste sites; however, the management team at Celgene had recently come across new research that suggested that the infamous drug thalidomide was showing potential as both a treatment for cachexia (a “wasting syndrome” associated with a number of illnesses, especially AIDS), as well as certain types of cancers.
Not surprisingly, the stock suffered greatly as everyone who had been owning it to be involved in bioremediation had to decide whether to sell it or to stay involved as the company began the transition over to being a pharmaceutical company – and, not just any pharmaceutical company, mind you, but one with no experience selling pharmaceuticals… that was going to attempt to break into the highly competitive cancer arena… by attempting to “bring back thalidomide,” a drug that had been banned for causing birth defects in just about every instance that it had been prescribed for pregnant women while it was on the market… and it was going to try and get into the business on its own, with NO partner.
When I first added Celgene to the newsletter in November 1995, despite already being up close to 150% for the year, it still had a market cap of just $87 million… and it went on to spend a number of years testing our patience while trading back and forth between $5 and $12 (or roughly 20 cents and 50 cents in today’s split-adjusted stock!) before it finally took off. However, though it took time, all of the skeptics on Wall Street who had been openly mocking the company’s plans to both “go it alone,” as well as attempt to market a product with a “black box warning” on the label that was perhaps the worst the world had ever seen (Celgene actually developed and patented a whole new method for doctors to discuss and address the risks of such a product with their patients as part of getting the product approved!), eventually came around as the results being obtained with the product began to speak for themselves… and the rest is history.
Apple Wired CoverAlong similar lines, though I had been familiar with Apple for many years, it was not until June 1998 that I finally added it to the newsletter (after it had already doubled off its lows, mind you!). At the time, it had also become a bit of a joke on Wall Street due to the success being achieved by the likes of Dell, Compaq, and other companies that were selling PCs running Microsoft’s Windows operating system. Not only was Apple’s market share dwindling to low single digits in a hurry, the company was also desperately strapped for cash in the ‘96-’98 time period, and many investors were concerned it would have no choice but to file for bankruptcy… and because I happened to come across it while cleaning out my garage this week, I thought it would be fun to share with you the cover of the June 1997 issue of WIRED magazine. As you can see, the outlook at the time was “grim,” to say the least!
Of course, thanks to the fact that Steve Jobs returned to Apple and helped get the company back on track towards only putting out products that were head-and-shoulders above anything else on the market when it came to user experience and satisfaction levels, not only did the company survive, but it went on to become even more successful than just about anyone could have imagined due to some variation of the maxim that “happy customers make for happy shareholders.”
As it stands (and again with the acknowledgement that the successes of Apple and Celgene in no way guarantee the success of MannKind), I want to remind those of you who have come this far that many of the greatest investments of all-time have come from periods of market inefficiency like the one MannKind is experiencing right now. If you are new to the newsletter, I believe you are being given a once-in-a-lifetime chance to start a position… and if, like many of us (myself included), you have ridden the stock down from higher prices but are still involved in the story, the mathematics of the situation strongly suggest that you should be taking advantage of the situation to “average down” if you’re able to (and again, only to a level that will still allow you to still sleep easily at night).
Will it be a challenge for MannKind to sell Afrezza without a partner? Yes – but it’s been done by others… and given the nature of diabetes and associated support groups, I think it will be a significantly easier task for MannKind to sell insulin on its own than it was for Celgene to sell thalidomide, for example! And, of course, if the company does sign up one or more international partners (especially in territories where FDA approved products can be fast-tracked), the rates of sales growth will likely be that much more impressive as word starts to spread.
As mentioned before, while I can’t tell you why Sanofi had such a hard time selling Afrezza, I can tell you that I am more convinced than ever that Afrezza will eventually become the mealtime insulin of choice, especially as more and more diabetics start to monitor their blood sugar levels in real-time (a trend that is already picking up steam as continuous glucose monitors become less and less obtrusive and easier and easier to use)… and, at least for now, owning MannKind stock is the only way to invest in the story.
Of course, there’s much more to the story than just Afrezza, and with MannKind’s old science officer (perhaps the world’s leading authority on TS?) now in charge of the work being done at RLS, it shouldn’t be long before a) development milestones start being hit, and, perhaps more importantly, b) the idea that TS is really just a platform that will eventually be tapped to improve the delivery of many, many different compounds will start to be validated.
Yes, it has been a bumpy ride… and, yes, there is still plenty of risk in the story. However, as mentioned above, if you’re still following along, history suggests that you should be taking advantage of the current situation to add to your position.
