Rumors, speculation, profit taking and other exogenous events can certainly influence the trajectory of a stock price, as stockholders in MannKind Corporation (NASDAQ:MNKD) painfully experienced in Tuesday's wild trading session. Ultimately, however, the fundamental driving force for any stock is the company's fundamentals. And in this regard, nothing seems to have changed at MannKind despite the stock's sharp fall in price, on record-setting volume of 37.9 million shares. On the contrary, if anything, the small biotech is inching ever closer to getting its innovative inhaled insulin product, Afrezza, on the market.
A Plethora of Reasons for the Plunge
The already-volatile shares of MannKind started falling soon after the market opened on Tuesday. The descent accelerated with each passing minute and the shares were down as much as 24.4% within the first hour of trading. It's almost always impossible to know with any degree of precision what's moving a stock. Wall Street analysts and stock market pundits will invariably provide a reason or two, reluctant to say they don't know, but the true causes are seldom black and white. Two negative reports by competitors to Seeking Alpha, which can only be characterized as silly, to be generous, may have been contributing factors; how else would you describe The Street's evaluation that MannKind is a "sell" due to "deteriorating net income, poor profit margins and weak operating cash flow," keeping in mind that the company is a developmental stage company, which, almost by definition, loses money and is cash-flow negative; The report from the Motley Fool, sadly, makes even less sense, to the point that it's virtually impossible to assess. Fueling the selling, too, were poorly worded reports by another web-based purveyor of stock information, theflyonthewall, which appeared to link potentially serious problems with Eli Lilly's (NYSE:LLY) antipsychotic drug Zyprexa with MannKind. As if the above weren't enough, there were rumors floating around that MannKind would be a no-show for a scheduled presentation at a Wells Fargo Healthcare Conference on Tuesday due to problems with Afrezza, and that the company had sold some more common shares.
Encouraging Words from the Company
Debunking one of the rumors, Matthew Pfeffer, MannKind's chief financial officer did in fact make his scheduled appearance at the Wells Fargo conference. That's not all; prior to providing an update on the company's progress with respect to Afrezza, and expertly fielding several questions, he laid to rest all of the rumors, speculation, and fears. More specifically, the two trials have been completed without incident and his confidence and optimism for Afrezza remains as high as ever; no shares were sold and the company has ample cash resources to get Afrezza to the finish line; and, needless to say, there is absolutely no connection between Zyprexa and MannKind. The timeline, meantime, for announcing the results of Affinity 1 and 2 remains mid-August and all of the commentary concerning partnership and FDA approval was largely unchanged from previous remarks. Mr. Pfeffer also discussed conversations with insurance companies about pricing for Afrezza, probably comparable, if not at a slight premium, to pen-delivered insulin products. All in all, he was very upbeat and clearly confident that the inhaled insulin product would be both approved by the regulators and a large commercial success. As a final remark about the presentation, he noted that doctors polled about using Afrezza were almost universal in their receptivity.
It's possible that the stock initially slipped on some profit-taking, which should be expected considering its parabolic ascent since the beginning of the year. The selling subsequently picked up steam, most likely driven by a combination of the factors detailed above and a stockholder base that was already primed to take profits following the massive gains. All that said, the stock price is almost exactly where it was at the end of May. Moreover, the company has completed all of the necessary testing of its flagship product and appears well on its way to commercialization. Indeed, the fundamentals and outlook that motivated us to write two previous articles on MannKind - Pricing A Highly Probable Takeover Of MannKind and Pricing MannKind Corporation On A Stand-Alone Basis - stay intact, Tuesday's price action notwithstanding.
Disclosure: I am long MNKD. 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.