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Summary

  • Ultra-rapid-acting Afrezza will replace needle-based, slower-acting insulin for long-term diabetics in at least one meal out of five, 20% of the long-term diabetic market.
  • Afrezza will become the insulin of choice with at least 50% of new diabetics starting insulin therapy.
  • Afrezza will make MannKind more than a $35 billion company.
  • $10,000 invested today will be worth $88,000 in less than 10 years.

I have been long MannKind (NASDAQ:MNKD) for more than two years and have seen many short raids in that time. They come, they go, and in these past two years MannKind has gone from a $2 stock to over a $10 stock, more than a 500% increase all done without FDA approval or a partnership announcement.

MannKind will continue to grow as a very profitable investment opportunity, and after FDA approval and a partnership announcement, MannKind's price per share will increase considerably in the coming years.

The Main Points

1. The worldwide rapid-acting insulin market is worth over 16 billion dollars yearly and is growing at around 7% per year. Insulin sales within the United States are over 8 billion dollars per year and are growing at over 12% per year.

2. Three companies currently dominate almost the entire world market and there have been no major improvements in their needle-based injected insulin in more than thirty years.

3. MannKind's Afrezza is a brand new game changing ultra-rapid-acting insulin that mimics the human pancreas more closely than current insulin. Afrezza will get in and out of the human body much faster than slower and older insulin which is of paramount importance to diabetics.

4. Afrezza is inhaled and not injected. It's more than just convenience, it's just common sense: Who would want to inject themselves 1,500 times or more per year when they can use the inhaler?

5. Afrezza was tested in three large clinical trials involving over 6,000 patients over several years and no statistical signal for increased lung cancer risk was established.

MannKind will likely do a long-term ten-year study after Afrezza gains FDA approval, but that is certainly not a reason to assume a worst case scenario. Why not assume a best case scenario? In any event, there will be no answers to that question for several years and in the meantime MannKind will be gaining market share.

6. The inhaler called Dreamboat uses a patented technology which MannKind calls Technosphere. That technology will also be used to deliver other forms of medication through the lungs. Company founder and CEO Al Mann recently stated at the last company shareholder meeting of May 12, 2014, he believes the Technosphere platform is capable of delivering other drugs and he specifically stated that the new delivery system could be well suited for delivering pain medication for migraine headaches. Perhaps, Technosphere could also be used for a variety of additional uses. The patented technology is brand new and only time will determine that answer. However, Al Mann has a track record of having already brought very successful new medical products to market, including insulin pumps and continuous glucose devices. The possibilities are extensive and each one of these can bring many millions of dollars in profits to MannKind per year in addition to Afrezza.

The New Paradigm

Human beings have a very difficult time imagining what change can mean before that change actually takes place. And, afterward human beings look back and say that it was obvious all along. Your children laugh at you when you tell them that you once lived in a world with only land based hard wired telephones. To them, there was no change in consciousness required when cell phones became reality. They were too young to know what the world was like before the cell phone. They were born with that new reality, they did not have to acquire it.

Afrezza is a new reality. Diabetics just starting insulin therapy will embrace it immediately as they have no former reality to unload. Older diabetics will change more slowly. In the next several years, MannKind will become a major player with their ultra-rapid-acting insulin.

A Quick Look At The Numbers

Currently, over 5% of the entire world is diabetic. That's almost 350 million people. The number of new diabetics is growing at around 12 million every year. These 12 million new diabetics will have a choice between having to use a needle or choosing the Dreamboat inhaler. Let's speculate that 50% of new diabetics choose the needle and 50% choose the inhaler.

Common sense tells me that many more people will use the inhaler over injecting themselves (even with insulin pens which we really know are not pens but needles in opaque cartridges so you can't see the needle). But in order to be conservative here, let's just say it turns out to be a 50/50 split. That amounts to 6 million new diabetics choosing to use Afrezza. If half of the world's new diabetics choose Afrezza, MannKind will have a world wide market share of at least 6 million diabetics per year.

Think of the publicity MannKind will receive when their inhaled insulin is approved by the Food And Drug Administration. MannKind could be on the evening news across the nation, in Europe, and in China as well as in The New York Times and hundreds of newspapers and magazines around the world. Tens of millions of people will learn about the new inhaled insulin over the course of the first several weeks after FDA approval.

Long-term diabetics will certainly hear about Afrezza through the media. If these diabetics only use Afrezza for one out of five insulin deliveries that would mean that MannKind would acquire 20% of the insulin market among long-term diabetics. This seems plausible to me; long-term diabetics could basically stay with what they already know but could choose to us Afrezza 20% of the time.

If MannKind acquires 50% of those diabetics just entering therapy, MannKind will have 6 million diabetics just starting insulin therapy. And, if MannKind acquires 20% of the insulin market among long-term diabetics, then we are looking at another 80 million diabetics (20% of 400 million people or 400 million people using Afrezza 20% of the time). That's just one use out of every five insulin deliveries. The total comes to 86 million people using Afrezza.

At current levels, diabetics spend about 16 billion dollars per year on insulin. If MannKind acquires 20% of that market, MannKind will be making 3.2 billion dollars per year. Then, add in the 6 million new diabetics using Afrezza and MannKind earns another 0.25 billion dollars per year. That's a total of almost 3.5 billion dollars per year.

Without any sales, MannKind is now valued at almost 4 billion dollars. Pharmaceutical companies with game changing technology can trade around a sales multiple of 10X. For example, Regeneron Pharmaceuticals (NASDAQ:REGN) is trading at over 13X and Gilead (GILD) is trading at 9X.

Even an industry giant pharmaceutical company like Novo Nordisk (NYSE:NVO), the current global industry leading insulin provider, trades at over 7X earnings.

Also, companies that garner a lot of positive publicity can trade at huge multiples. For example, Facebook (NASDAQ:FB) was trading at 45X and is currently at almost 20X and Tesla Motors (NASDAQ:TSLA) was at around 20X and is now still over 12X.

If MannKind trades at a sales multiple of 10X, the $10 price per share at today's valuation of 4 billion dollars will be almost $88 per share when the company has a 35 billion dollar valuation. If you own 1000 shares today, they are worth around $10,000 and when ManKind reaches that 35 billion dollar valuation they can be worth $88,000 dollars. If you own 12,000 shares, your return will make you a millionaire.

These numbers assume only a competitive market share against current insulin producers, not a dominant market share, only one year of 6 million new diabetics, and there is no assumption for inflation. In five years, MannKind can have 36 million new diabetics (not only 6 million) who started insulin therapy after Afrezza became available. All this is possible within the next five years and certainly within the next ten years. Even higher numbers can be possible once Afrezza becomes publicly accepted as a replacement to needle based slower acting insulin. Also, these numbers do not consider additional revenue from other medications that will be delivered with MannKind's Technospere delivery system. That can add a considerable amount to the value of MannKind shares too.

What Can Go Wrong

With all new companies employing new technology, there are always inherent risks and MannKind is no different. There can always be a FDA denial coming on or before July 15th, a partnership announcement may never come, FDA required labeling may diminish sales and significant market share may never materialize, and some skeptics suggest that Afrezza may be found to cause cancer after long-term studies are completed in several years. There is some percentage of possibility with any of these scenarios.

The Finish Line

Inhaled ultra-rapid-acting Afrezza will replace older and slower-acting needle-based insulin with 50% of new diabetics entering insulin therapy and Afrezza will be used in at least one meal out of five among long term diabetics (that's 20% of the long term market).

MannKind will gain a competitive market share in diabetic insulin therapy and grow from a $10 price per share to over $88 price per share.

In less than 10 years, you could sit back and say, "I bought MannKind for $10 per share. It changed my life. It was the best financial decision I ever made."

Source: MannKind Poised To Enter Worldwide Insulin Market With Ultra-Rapid-Acting Afrezza