Post by mannmade on Sept 1, 2016 11:55:03 GMT -5
Don't Buy The MannKind EpiPen Hype
Sep. 1, 2016 9:30 AM ET|27 comments | About: MannKind Corporation (MNKD), Includes: MYL
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Summary
MNKD is the carcass of a failed venture with a share structure constantly being blown out and no future cash flush profit generation prospects on the horizon.
It was recently announced they could be looking at producing a generic version of EpiPen via an inhaler, an idea we can only see as a total disaster.
We're not buying the hype and we're certainly not buying MNKD.
By Parke Shall
MannKind (NASDAQ:MNKD) is a cash burning company that we have been skeptical about for years. We haven't written about it as much as we would like, but the company has had a long strange journey, most recently culminating with the unfortunate death of the company founder and what some are also considering to be the unfortunate death of the company's flagship product, Afrezza, an inhalable device for administering insulin.
MNKD is a company with an enterprise value of $541.2M at its current share price of $0.80. The company currently has $63M in cash versus a hefty $222M debt load and the company had an operating cash flow burn for the last 12-month period of an astounding ($84.71M). This pins the company with less than 4 quarters of cash to survive, should it continue to burn cash at the same rate as it has over the ttm period.
Here's what the wild strange trip has looked like for the company in terms of market cap and share issuance.
MNKD Market Cap Chart
MNKD Market Cap data by YCharts
The short history of MNKD was that it was a company that was striving to make an inhalable insulin device for use by diabetics. The company developed its product in house and got it approved by the FDA in early 2013. From that point, however, things slowed down drastically and the company was unable to find a long standing partner to help it sell and market. Reception was tepid from the onset, and MNKD had a lot of trouble filling out its valuation. Hence, the stock basically crashed over the last two-year period, as you can see in the chart above.
Much of the difficulty was in the inhalable method of delivery. Rather than scrap it and move into an(y) other business, MNKD has stayed with the inhalable product they have and are trying to pair it with other medicines, including epinephrine.
Since then, MNKD has been a company that has struggled with vision. There is no more telling of an example of this than the company's emotional attachment to its broken model by trying to further other inhaled drugs. Lately, MNKD stock has gotten a bump from recent press that they are going to try and develop a generic EpiPen. Since the Mylan (NASDAQ:MYL)/EpiPen pricing controversy is everywhere, it's been a great way for MNKD to get into the news, like this writeup on Yahoo Finance,
We view that as our lead program at this point," News Times quoted MannKind's CEO and CFO Matthew Pfeffer as saying. "Not because of what's going on in the news today, but because it just makes sense. It's been in development for some time."
Pfeffer also acknowledged that the company expects to meet with the U.S. Food and Drug Administration (FDA) later this year and hopes to file for an Investigational New Drug designation in early 2017. Should the product be approved, he has "every reason to believe" it will be "much cheaper" than the EpiPen.
While MYL (a company mainly focused on generic drugs) has already come out and said they are developing a generic, MNKD continues to throw its name in the hat despite:
1. The inhaler already seemingly being a failure due to difficulty of administration.
2. No previous experience in developing generics.
3. A long timeline to approval in a market that already has several competitors on market for MYL's EpiPen.
The reason that MYL is able to raise the price on EpiPen so much is because the patent is in the auto injection device. It's the perfect method of quick delivery for someone suffering from anaphylactic shock. There are other competitors out there, but the EpiPen brand and method of delivery is clearly the preference in the anaphylactic shock market. With MYL having the patent and the knowledge already, this puts them in a perfect spot to develop the generic.
A great article from early January of this year lays out other reasons an inhaled EpiPen isn't likely to work,
The current injected forms of epinephrine have proven to be cost effective and fast acting when it comes to treating a patient for their anaphylactic events. Should MannKind proceed with their attempts to get FDA approval, they would be entering a market already crowded where companies have a history and a cost effective product. As with Afrezza, the creation of a dry powder formulation would erode the ability for MannKind's product being cost effective. Pfeffer and Dr. Urbanski, surely know the history of Afrezza and the pricing issue they are facing.
Assume that MannKind moves ahead with this project. Let me ask one simple question? Anaphylaxis events need quick remediation and often a follow-up check by their attending physician. If you experience a sudden attack and you go into anaphylaxis shock, would you want the EMTs, your friend, or work associates having epinephrine available as an EpiPen injector, or where you will have the inhaled form of epinephrine. Remember, anaphylaxis shock can render you into an unconscious state. With the Epi-pen the dose can be given directly through your clothing---as quick as one pulls the protecting cover from the injector. With an inhaler you would have to load the dosage and then possibly be placing the inhaler in the mouth of an unconscious patient. Which would you choose to carry with you, at all times, if you suffer from this condition? Never forget! With Afrezza, MannKind is admitting that it has been a hard task trying to train physicians and diabetic patients how to use their inhaler.
MNKD, we believe, will see this be another failed project and another venture that costs shareholders cash and continues to expand the share structure. Although it is nice in the sense that it capitalizes on the EpiPen headlines for the company, potentially drawing more attention to the name, we don't think it will ever develop into a tangible segment of MNKD's business, with respectable margins or actually even with a final developed product.
This brings us back to square one on MNKD. We have a company that is burning over $80M in cash from operations over the last year and has only $60M in the bank. Without a product, and without a vision, MNKD does not seem like somewhere we would like to have our capital invested. Despite the stock price moving lower over the last two years, it is the valuation we need to look at.
MNKD is still valued at an EV over $500M, an absurd figure that we believe the company has no chance of filling out based on its past history of sales and failed product launches. We are not even sure that MNKD is worth 1/10 of that figure, and we are certain that a few new EpiPen headlines devoid of real paths to cash generation are not reason enough to go diving into an in investment in MNKD stock.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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