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Summary

  • The company's directors made some key remarks during the most recent earnings call that investors should closely monitor and decipher.
  • An FDA decision and a potential partnership could come before the July 15th PDUFA deadline.
  • Short interest in the stock appears to be declining, as the latest short interest report shows and the next report could continue to confirm.
  • MannKind shares present investors who have a long-term outlook with a great ground floor opportunity.

In less than 2 months, MannKind (NASDAQ:MNKD) shareholders will finally found out the fate of the company's PDUFA decision from the FDA for Afrezza. In April, the FDA postponed their decision on the company's novel fast-acting insulin treatment, Afrezza, even after an FDA Advisory Committee (Adcom) overwhelming supported an approval decision for the drug and delivery device. In the most recent Q1 earnings call just last week, the company carefully discussed with shareholders and analysts what the company has been doing in the meantime while awaiting a decision from the FDA. I believe the earnings call provided some very key takeaways in the remarks of the CEO and other directors, which provide strong signals that an approval could be forthcoming from the FDA and that a partnership announcement is coming very soon as well. With these key points in mind, it would appear that an FDA approval for Afrezza is looking more and more positive as the PDUFA deadline approaches.

In a previous article, I emphasized many points why I believe MannKind shares will rise significantly upon approval of Afrezza. Additionally, I provided a few hypothetical valuation scenarios to help investors understand the significance Afrezza, and most importantly, the Technosphere platform, will have on MannKind's share price going forward. In these valuations, I was very conservative with the multiple attached to these valuations, but investors were able to see just how profitable owning shares in MannKind prior to an approval decision could be, even when being very conservative. And I will note that even with the overwhelming Adcom recommendation for approval, an FDA approval decision is not guaranteed. Even a favorable decision could come with some major restrictions on the labeling, which would affect the target patient outcome. However, I just don't believe there will be any major restrictions that will affect Afrezza's success in the market. In addition, I believe the FDA would provide a complete disservice to patients and doctors by not allowing Afrezza to enter the market or restricting it so badly that it doesn't reach those who will benefit from it. There could be some pediatric trials or monitoring requested, or some summary market studies to be performed, but the overall success and adoption of Afrezza by doctors and patients should be widely accepted. As some have already noted, this product is a game changer for diabetics.

Earnings Call Takeaways

I believe the earnings call provided investors with a plethora of information, using which they can make a solid investment decision prior to the FDA decision. I will highlight a few comments made during the earnings call that I believe to be key takeaways for investors, and provide my personal thoughts for each below as to why I believe the comments are more than just conjecture from the company's directors.

1. Early in the call, Chief Operating Officer Hakan Edstrom stated, "we are currently actively working with the agency to ensure a timely review. In the meantime, we are preparing our Danbury site for commercial production by executing qualifications and validations rounds using operational infrastructure."

Obviously, for the company to be preparing for commercial production at the Danbury site, this shows the confidence management has in the Adcom recommendation for approval of Afrezza. While this could be seen as a normal operating maneuver for any company, the fact that they are moving in this direction this early provides an indication they are pleased with the communication they are having with the FDA. Mr. Edstrom also stated the company was, "eagerly awaiting the finalization of the NDA by the agency." This could be a misunderstood statement that the company is awaiting a decision, or it could mean it is confident of approval, and it is just a matter of dotting the "i's" and crossing the "t's", so to speak, which would be a very good thing. It could mean a decision might come sooner than July 15th. Several FDA-delayed PDUFA decisions in the past year have come prior to the 90-day extended timeframe. And while this is my own personal view of the comments, I know there are other investors who interpret it the same way. But just to note, even Al Mann, chief executive officer, stated, "They may not need the full three months, but we cannot predict when they may announce the decision." The point is, investors should not wait until the week of the FDA decision to make their move in the stock, whether that is long or short.

2. CEO Al Mann, also stated, "Another major activity during this past period has included rather intensive discussions and negotiations with a number of potential partners."

This is very good news for investors. Shares of MannKind have struggled to appreciate in value over the past year because of the absence of a partner being announced. Mr. Mann's statement regarding a number of potential partners is very compelling. I have long believed that a Big Pharma company would partner with MannKind for Afrezza. In fact, I believe the Big Pharma companies who miss out on becoming a partner of MannKind will definitely miss a great opportunity, especially if the Technosphere platform is able to branch into other medical needs, such as fast-acting pain relief from an "over-the-counter" patient perspective. In my opinion, a partnership deal will be forthcoming soon. CEO Mann noted in the call, in regard to a partnership announcement, "Yet we do say that we are making progress and that we expect much to report on those important matters within the matter of weeks." Obviously, for both investors and potential investors, this is a key statement.

3. CEO Mann, in the question and answer session of the earnings call, stated: "I believe that there is enough expectation of approval now which is really a question of the detail of the label and the [Paramus] program that are the only issues really outstanding at this point but one never knows what's going to happen with the regulatory process."

In my opinion, this is the most important takeaway from the earnings call. I believe Mr. Mann is telling investors that approval is expected, and he has informed investors of what the issues were, which are being dealt with to finalize an approval of Afrezza. As I noted earlier, some investors are expecting some label restrictions, as there are with any drug in our world today, and other investors are expecting some form of studies or trials in relation to children. I believe CEO Mann just confirmed those expectations, and I believe the company will work out agreeable terms with the FDA, if it hasn't done so already. The discussion of the sNDA being filed for the 9 and 12-unit cartridges immediately after the approval of Afrezza is also a very interesting note for investors. The company is looking forward, and not behind anymore.

Short Interest in MNKD Shares

Short interest remains high with MannKind stock. As of April 15, 2014, the latest update shows 65.647 million shares still short in MNKD stock. This number is down slightly from the end-of-March report showing 68.330 million shares. The next report is due on 5/27/14 after the market closes, and I fully expect that the short interest will continue to show a decline. The high short interest in the stock in the past few years made complete sense, due to the previous attempts at approval and the subsequent CRLs (Complete Response Letters) from the FDA. However, with such an overwhelming Adcom recommendation for approval on April 1, 2014, I am dumbfounded in understanding why the short interest still remains as high as it does right now. Maybe those who are short believe there will be major label restrictions on Afrezza that will not be appreciable to investors, but I believe the earnings call statements made nullify that thinking entirely. Most importantly, I believe the overwhelming Adcom recommendation for both Type 1 and 2 diabetes treatment completely nullifies that line of questioning. Simply put, those who are still short MNKD shares appear to be playing with fire. If a favorable decision were made prior to the extended July 15, 2014 date, shorts would be completely caught by surprise and would likely suffer major losses. A partnership announcement in the next few weeks would have the same effect. Personally, I do not believe shorting MNKD is a good risk versus reward opportunity here, with so many catalysts upcoming for MannKind. Even after the Adcom panel meeting and once the vote was announced, one of MannKind's biggest opponents, The Street's Adam Feuerstein, admitted to being wrong about the chances of approval for Afrezza. This should be a message to shorts to rethink their position on MannKind. Adam was one of Afrezza's biggest contrarians, and if he is willing to admit that he was wrong on the chances of Afrezza receiving FDA approval, it should be a huge message to investors, both long and short.

Ground Floor Opportunity

While MannKind presents an extremely valuable short-term opportunity, with so much attention surrounding the FDA decision on Afrezza and a potential partnership announcement, I still believe the Technosphere platform has now been validated with the success of the numerous trials and the Adcom recommendation. With a favorable FDA outcome very possible, a successful partnership looking better every day, and the future potential for the company to enter other drug markets, MannKind appears to be one of the best long-term opportunities in the markets today. Currently trading around $7 a share, MannKind should still be considered as a ground floor opportunity that doesn't come around in the markets very often. Recent events surrounding the company suggest that an FDA approval for Afrezza is looking more and more positive. Investors with a long-term outlook on MannKind could be rewarded significantly in the years to come.

Source: MannKind: Approval For Afrezza Looking More And More Positive As Investors Await FDA Decision