Post by savzak on Jun 12, 2015 8:47:12 GMT -5
seekingalpha.com/article/3254335-my-updated-thoughts-on-mannkind
David Butler
Value, event-driven, ETF investing, commodities
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My Updated Thoughts On MannKind
Jun. 12, 2015 6:41 AM ET | 40 comments | About: MannKind Corporation (MNKD), Includes: PFE, SNY
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More...)
Summary
•My first article on Mankind Corp. received harsh comments on my apparent disapproval of the company.
•The purpose of the article was to bring attention to a potentially good firm with a product that had not yet proven itself financially.
•Due to the lack of a financial showing, I stated clearly that it was unwise to buy stock in a company based solely on speculation.
•The purpose of this article is to show that current trends for MannKind Corp. do not offer a clear road to success and rather buyers should wait.
•Poor reception of the drug, combined with Pfizer's failed Exubera, serve as examples of how Afrezza could fail. The CFO has stated himself there is much work to be done.
A few days ago I published an article on MannKind (NASDAQ:MNKD). It was a simple publication meant to make investors aware of the firm and its product for diabetes. For those who don't know, MannKind's product Afrezza is an inhaled insulin drug. Obviously there are serious implications for having such a drug on the market. However, the firm has yet to deliver on sales of Afrezza since its approval last year. Due to the lack of any profit, I said I felt it a good idea to add this stock to our watch lists and see what happens. The article received largely negative commentary citing a lack of analysis. This article is meant to support my opinion and enforce the basis for my observations that MannKind is a good potential addition to portfolios, but not yet. I want to state now that this is meant as a viewpoint for people with risk-averse portfolios and those with reasonable expectations. For those looking to find those "400% return" market miracles, stop reading.
When the financials are so bad that you have to look for your information in business events and headlines, you can tell MannKind is not yet a safe bet. Their own CFO Matthew Pfeffer has stated "we're not there yet" with the hurdles that need to be covered in the future.
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"We need to get some of the fixed costs covered. We're clearly not there yet," Pfeffer said. "I have some forecast that can say we'll get there pretty quickly but beyond that I'm not sure I want to be too open at this point."
The problem is simple. Their product (co-partnered with Sanofi (NYSE:SNY)) is not building sales. Doctors and patients are either not aware of, or not necessarily sold on Afrezza just yet.
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"We still see a lot of surveys that show a lot of doctors don't know about Afrezza," Pfeffer said.
To counter the lack of sales growth, Afrezza and Sanofi are expected to begin a marketing campaign next month targeting consumers. How long that will take to aid the drug is uncertain. It should be noted that Afrezza and Sanofi are not the first to try an inhaler for insulin. Pfizer's (NYSE:PFE) Exubera was approved by the FDA back in 2006 and the firm had hoped for sales of $2 billion a year. Drawbacks to Exubera were cited as the inhaler being too large, and patients did not enjoy the required lung function testing that accompanies using an inhaled diabetic treatment. The drug did so poorly it was eventually pulled from the market. Though the container for Afrezza is reportedly the size of a whistle, it faces the same lung testing requirements that Exubera did. Analysts in the industry reportedly forecast Afrezza's sales to not even come close to Exubera's figures. They have the drug's annual sales at somewhere around $180 million a year by 2018.
Another deterrent I see in the push to get Afrezza into the market is pricing. Sanofi's injectable equivalent of Afrezza is called Apidra. It costs $3.19 for a daily dose. Afrezza is priced at $7.54. With that pricing I'm led to wonder how insurance providers will even consider covering the extra cost as opposed to injectable treatments. The drug also can't be used in those with asthma and is not advised for smokers.
Considerations should also be given to the fact that in the partnership between MannKind and Sanofi, MannKind only receives 35% of future profits with an upfront payment of $150 million and potential milestone payments. Let's say if this drug even profits in the next two years, it drastically undersells. Will 35% (or about $63 million IF they hit sales forecasts) be enough to cover the expenses the company has run up developing this product? When I see the structuring, I tend to think that perhaps Sanofi is the better addition to the portfolio. There are problems on that view as well, however. According to Reuters, Sanofi's $7 billion in annual diabetes sales contribute about 30% of their profits as a company. Its patent on its insulin medication, which is the world's most prescribed, is about to expire. This represents a real problem for the company. Afrezza is a big deal for them. If it doesn't work, they're most likely going to be stagnating in terms of earnings for the next couple of years as they lose market share to generics. The firm also fired their CEO Viebacher in 2014 over a poor year for their diabetes division.
MannKind is down around 30% from its Tuesday high. The high volatility showcases the utter lack of financial backing for its stock pricing. Since the approval of Afrezza last summer, MannKind hasn't had one quarter with positive net income. To be fair, the losses to common shares are decreasing. Since June 30, 2014, net income losses per quarter have shrunk by 58%; with the latest Q1 2015 net income at ($30,658,000). Still, this is not enough to warrant confidence.
I hope this article has addressed some of the poorly received issues that my prior attempt at MannKind apparently did not clearly express. It is my opinion that MannKind is not a safe investment at this time. Their drug Afrezza is not selling. There is precedent in Pfizer's (PFE) Exubera to showcase that there is a very real scenario in which Afrezza will fail. Furthermore, MannKind's partner Sanofi appears to be receiving the majority of the gains in the event that the drug does truly take off while MNKD is looking at 35% of the future business. The pricing of the product is well above regular injected insulin, and patients are subjected to more difficult screenings for lung function while taking the drug.
Please let me be clear, it's not that this isn't a potentially great future play pending the success of MannKind/Sanofi's planned marketing campaign and future sales. As of right now, there are no financial merits backing this stock and therefore I do not see it as any more than the equivalent of an up and down day trader's delight (and regardless of what they say, those guys get burned a lot.). I will be writing on this company as well as Sanofi further in the future after we see how the next few quarters play out. I want to leave you with this since I know this article will receive a plethora of negative comments. MannKind has total net assets of negative $97 million. Say whatever you want to try to justify their "speculative" share prices, this is a negative enterprise at this time.
