Bull Case for Mannkind
Krishna is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Mannkind (NASDAQ: MNKD) is a multi-bagger from its current levels in the next 1-3 years.
This article will dive into the key elements of the investment thesis behind why I think Mannkind has such an enomous potential and will also highlight some of the risks. As a summary, we have a serial entrepreneur with multiple successes in the CEO. The drug has gone through Phase III clinical trials with no objections by the FDA. There are no direct competitors.
Al Mann became a billionaire by founding a series of successful startups that were later acquired by larger companies. Among his companies was Minimed which made insulin pumps (Minimed was acquired by Medtronic). He has invested approximately a billion dollars into Mannkind and currently has a 40% owernship stake.
Mannkind has several products in the pipeline as well as a drug platform. The primary product (which is what drives the companies valuation) is AFREZZA, an inhalable insulin. The FDA has had no issues with this drug at all through clinical trials and has recommended a study on kids as young as 4 years old. This insulin addresses the Type 1 & 2 diabetes market and has shown amazing results..ie blood glucose response similar to normal insulin produced in non-diabetic people and fast acting response (approx 15 minutes or less). It also has shown an ability to blunt weight gain ( a common problem with diabetics). The inhaler is the size of a whistle (unlike Pfizer's which was the size of a tennis ball can).
AFREZZA will be delivered on the Technosphere platform. Technsphere is an excipient, a base on which the insulin is bonded and delivered into the lungs. It is designed to be used with a large number of other drugs and could be monitized in its own right.
Dreamboat is the inhaler designed to support users of AFREZZA. This to can be independently monitized and used for delivery of other drugs. It is very user friendly and approximately the size of a whistle.
Mannkind also has several cancer drugs in early stages of the pipeline.
Afrezza has completed Phase III clinical trials and Mannkind has not received any CRLs where the FDA has pushed back on the actual drug. During the last FDA submission, Mannkind switched the inhaler to the gen2 inhaler (Dreamboat) which was smaller, cheaper to manufacture, and required 30% less insulin in the pill yet delivered the same amount into the bloodstream. Mannkind is currently running two more Phase III clinical trials to prove that Dreamboat is equivalant to the Gen1 inhaler.
The inhalable insulin space was quite congested a few years ago with Pfizer (NYSE: PFE) getting FDA approval for Exubera. At the time of Exubera's launch, Eli Lilly (NYSE: LLY) also had a inhalable insulin program as did Novo Nordisk (NYSE: NVO) and Alkermes (NASDAQ: ALKS). Exubera had market acceptance issues (due to the extremely large size of its inhaler, and lack of benefits and an inability to get insurers to pay for it since it was not any more efficious than existing diabetes treatments). The others have had issues with their programs and have subequently abandoned them. There are no existing competitors with an inhalable insulin on the market or in development. Mannkind's only competition is with pills, below-tongue dissolving tablets, skin patches and needles. The under-tongue tablets and skin patches are still early in their developmental cycle.
Partnership & Funding
Al has a reputation of being an extremely hard-nosed at negotiations...so where others would have partnered earlier, I expect the partnership for Afrezza to come closer to FDA approval.
Funding can come from a wide range of sources...including
- Licensing/partnership of the cancer drug pipeline
- Licensing of technosphere.
- Licensing of dreamboat.
- Go-to-market parternship(s) for AFREZZA
- Equity & Debt offerings.
There is a huge question mark as to which path will be taken in 2012...as existing funding is only sufficient for this year (combination of cash on hand and the $38M remaining on Al Mann's line of credit). The next round of funding, if equity or debt will likely see Al Mann also adding more money as he has in each past round of equity based funding.
There are a number of catalysts that could propel the stock to move up very quickly. These include:
- Partnership for AFREZZA will have the largest impact on stock price
- FDA approval
- Licensing agreements with upfront payments and/or additional debt financing.
kkm5848 owns shares of MNKD. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend MannKind and Pfizer. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.